The funds have pulled out of the soybean market in a big way, reducing further downside price risk for the leader of the oilseeds markets, say analysts.
Managed money was net long 101,329 contracts as of Nov.1, down from the 2022 high of 180,334 net long contracts set Feb. 22.
Speculators were net short 7,171 contracts on Nov. 1, down from a high of 41,308 net long contracts set on Feb. 1.
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“There is no doubt soybeans have lost favour with the speculative crowd since June,” DTN lead analyst Todd Hultman said in a recent column.
That is when U.S. Federal Reserve chair Jerome Powell started warning about the possibility of a U.S. recession.
Hultman believes that announcement triggered the exodus of fund money and the subsequent drop in nearby soybean futures.
“Having specs out of the market is not all bad, however, as that selling ammunition has been spent,” he said.
The funds did increase their long positions and decrease their short positions in the last week, but not to the extent that existed earlier in the year.
Rich Nelson, chief strategist with Allendale Inc., has a similar view of the soybean market.
“We’ve seen some of the risk removed from this market,” he said.
Although he noted that managed money can go net short, as it did in 2019 when it went as low as 148,526 contracts net short.
But he believes there is going to be some short-term stability in fund money investment following the recent exodus, and that should result in soybean price stability.
Nelson believes $14 per bushel is a good price for the January contract going forward.
The soybean balance sheet does not have the same weaknesses as corn or wheat. Export sales are on pace to meet the U.S. Department of Agriculture’s forecast and domestic crush is looking strong, he said.
Hultman said based on January futures prices, the value of crushed soybeans was $3.76 above the cost of uncrushed soybeans as of Oct. 27.
“That is among the highest premiums on record for January contracts,” he said.
It is one of the main reasons why Archer Daniels Midland posted its best third quarter results on record, with earnings of US$1.03 billion.
Hultman said there is no reason to believe the incomparable crush margins will be going away anytime soon.
But exports have been lackluster, with shipments down eight percent from year ago levels early in 2022-23, due in part to reduced barge traffic on the Mississippi River caused by low water levels.
“This is the active time of year to move soybeans and take advantage of Brazil’s lower supplies before the next harvest arrives in February,” he said.
Prices are also being pressured by projections of a record crop in Brazil, but some weather forecasters say cool weather and drier conditions are on the horizon for the world’s leading soybean producer.
Hultman believes the overwhelming demand from U.S. crushers will offset any potential lost export business due to a bumper crop in Brazil, keeping U.S. soybean supplies on a tight path towards summer.
“From my view, U.S. soybeans are currently undervalued, at least until January,” he said.
Contact sean.pratt@producer.com
