Prices rallied again last week in the corn and oilseed complex on the back of shrinking supply concerns due to adverse weather forecasts in South America.
Soybeans prices will stay at elevated levels, and as we get closer to $14/bu, we may see some resistence.
However, a further push to higher prices is also likely given the rally momentum.
Forecasts for the this week show a marginal improvement.
But, overall primary fundamental themes to watch for remain the same, i.e., developing weather in South America, demand for US production from China, and expected USD weakness on the back of continued quantitative easing resulting in higher commodity prices.
We think that USDA is overestimating the South American crop size and, in turn, underestimating the potential world demand that will be pushed towards the US.
CBOT, last week, surprisingly showed a reduced long on soybean positions.
However, this could be in function of fund profit-taking money on the phenomenal rally seen in soybeans.
In fact, soybean prices have rallied 32% in the last 90 days, and any money management principle would have warranted a reduction in position size.
While, funds added to length on the corn, where are inching closer to the maximum position they held in the last few years.
Wheat prices, for his part, rallied too initially last week, in line with the rally in black sea wheat price.
However, US wheat prices had retraced to the previous week’s closed level by the end of the week.
In fact, fundamentally, not much has changed for wheat.
The rally in black sea prices now is equivalent to the Russian government’s export duty, i.e., for domestic prices, and the impact of import duty has been nullified.
Russia may put additional restrictions to curb the rally in prices, in fact a domestic wheat price inflation continues to be a cause of concern.
However, we continue to hold our view that standalone wheat’s fundamentals are not bullish enough to result in a continued price rally.
The primary reason for last week’s rally in wheat was the strength in corn prices.
However, risk of a further rally in corn spilling over to wheat remains.
And corn prices continue to be a function of the pace of Chinese demand for US corn and South America’s developing weather, enough to be trade at the psychological $5bu mark, even if for few moment.
US Corn is still competitive in the world export market, and the US likely estimated carryout could continue to reduce, acting as a support for corn prices.
Regarding the oilseed complex, soybean prices breached the seven-year high last week.
The critical issue is the low expected ending stocks in the US, and given adverse weather conditions in South America pushing the world demand toward the US.
We think that soybean oil will has further upside given fundamentals of alternative oils are getting supportive.
As long a crude oil prices remain in a range or trade higher, soybean oil can potentially trade a lot higher from current levels.
Soybeans are now trading well above $13.
Only a significant demand destruction or vast expansion in the new crop is one the way prices could potentially retreat from current levels, though both are not possible in the short term.
So, traders should continue to hold a long position in beans with some protective stops.
