A dissenting view says the U.S. will not be able to keep up the flurry of shipments to China that has occurred this year
Chip Whalen thinks the soybean bull run could have more legs.
Funds have moved from a record net short position of 337,000 contracts this spring to a near-seasonal record net long position of 138,000 contacts as of Oct. 6.
The purchasing of 475,000 contacts over the past few months has ignited the soybean market, driving the March contract price close to $10.50 per bushel by mid-October.
Whalen, vice-president of education and research with Commodity and Ingredient Hedging, thinks the funds may not be done with their buying spree.
“This is something that we might see continue,” he said during a recent webinar hosted by the United States Soybean Export Council.
He noted that the funds were net long 370,000 contracts back in 2010.
“Not to scare anyone but there could be more buying that’s coming if they want to build a record long position,” said Whalen, who provides risk management advice to soybean buyers, producers, processors and end users.
Darin Newsom, president of Darin Newsom Analysis, disagrees with that assessment.
He said there was a different dynamic in 2010. The southern U.S. was gripped by drought between 2010 and 2013.
And the U.S. was a much bigger player in the Chinese export market.
“We were a 50-50 supplier to China with Brazil. That is not the case anymore. We’re a secondary supplier,” said Newsom.
China has pumped billions of dollars into Brazilian infrastructure and is buying as many soybeans as it can from that nation because of that investment and the weak Brazilian currency.
“The only reason why the U.S. soybeans are up now is because China ran Brazil out of soybeans,” he said.
If it rains and crop conditions improve in South America, China will stop buying U.S. soybeans and switch back to Brazilian beans.
“When China stops buying there is absolutely no reason for funds to hold their long (positions),” said Newsom.
He believes the U.S. dollar is poised for a bull run, which would exacerbate that exodus.
“It creates an incredible vulnerability in the soybean market to collapsing,” he said.
“I’m telling producers just to sell soybeans. I do not want to be holding cash soybeans.”
Newsom thinks canola futures will also be impacted by funds exiting the soybean market because they tend to follow soybean futures.
Whalen thinks there is further opportunity for rising soybean prices. He noted that the recent price appreciation is coming off a 10-year low of $8.29. So while it has been a nice bull run it is nothing outlandish.
He noted that soybean futures hit $17.12 during the drought year of 2012-13.
One of the factors behind the recent bull run was the Oct. 9 U.S. Department of Agriculture World Agricultural Supply and Demand Estimates report.
Soybean ending stocks were dropped to 290 million bushels from the September estimate of 460,000 bu.
The adjustment was necessary because the USDA dropped 2020-21 beginning stocks and production and increased exports.
The new stocks-to-use ratio is 6.4 percent compared to 13.2 percent last year and 22.5 percent the year prior to that.
Whalen said there is only one other time in recent history where the stocks-to-use ratio dropped so precipitously and that was between 2006-07 and 2007-08.
“That is something that has really gotten the market’s attention,” he said.
Whalen thinks there could be further downward revisions to the size of the U.S. soybean crop in the November and January WASDE reports.
“It’s possible that the balance sheet becomes tighter in upcoming reports,” he said.
But perhaps more important is what is happening on the demand side. The U.S. had sold almost 34 million tonnes of new crop soybeans by the end of September compared to the five-year average of about 21 million tonnes.
That strong start makes him think soybean futures prices may be heading higher.