According to weekly crop progress reports, the 2013 soybean harvest started during the latter half of September, with initial progress numbers reported on Monday, September 23. For that reason, I took the four major spreads (Nov to Jan, Jan to Mar, March to May, and May to July) for the 2013-2014 marketing year back to the week of September 16, and plotted the trend of each. The results are interesting.
Since the beginning of harvest there has been a lot of talk about how yields are better than expected, and that the soybean market is growing more bearish. And initially, all four spreads did trend down indicating commercial traders were selling. In the Nov to Jan spread, the nearby spread, that last for about one week. After the week of September 23 the spread has been in an uptrend, reflecting the reality that renewed demand is offsetting supplies coming in. This spread closed at a 1 3/4 cent carry the week of September 23 before settling Monday, October 21 at a 2 3/4 inverse. The larger than expected yields are being shipped out as fast as they are coming in.
Further out, the Jan to Mar and Mar to May saw their downtrends last through the week of October 7. Again, this isn't overly surprising. But after bottoming out at a 12 1/4 cent inverse (Jan to Mar) and 14 1/2 cent inverse (Mar to May), both rallied into Monday's settlement. Of these two, take note of the move in the Mar to May as covers the time frame when South American supplies tend to displace the U.S. in the global export market. Are traders growing more bearish on the idea of another huge Brazilian crop? No, just the opposite, with the uptrend indicating traders are actually growing increasingly bullish.
The sideways trend in the May to July spread (purple line) seems to indicate traders are taking a wait and see approach to the end of the 2013-2014 marketing. Possibly by this point we will be talking about larger than expected global supplies, as well as increased U.S. acreage intentions for 2014. Still, the spread settled this past Monday at a 4 cent inverse, far from bearish.
The bottom line is this; the general trend in soybean spreads remains up. The inverse in the forward curve (series of futures spreads from November through July) is strengthening once again, and should continue to provide support to the futures market. Given this bullish commercial outlook, nearby soybeans should be able to retrace at least 50% of the previous sell-off, possibly extending to a 67% retracement or more. Remember that futures market posted a bullish key reversal on its monthly chart in August, indicating the major (long-term) trend has turned up. Combining these two factors (trend in spreads, trend in futures) puts the long-term price target area between $14.75 and $15.80.
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