Deep within the confines of some of South America’s most fertile lands, a threat might be growing to the rally in US soybeans.
Brazil’s Rio Grande do Sul, Santa Catarina and Paraná provinces, which together grow almost 35% of the soybeans from the world’s number two producer, are to unleash a record crop this year.
Agricultural sector analysts, who have been crunching numbers from the provinces over the past few weeks, say that when volumes from the three regions reach the market they could take some heat off soy futures, which are trading at their highest in nearly seven years on the Chicago Board of Trade (CBOT).
While CBOT soybean futures hit mid-2014 highs of nearly $14.60 per bushel on Tuesday, they quickly came off those highs on concerns about Brazilian production, noted Jack Scoville, who oversees crop research for the Price Futures Group in Chicago.
'Brazil Harvest Will Kill'
Adds Scoville:
“Selling came on ideas that the impending Brazil harvest will kill current demand for US soybeans.”
“The Brazil harvest has been delayed due to late planting dates. There was early dry weather. Now, too much rain has caused harvest delays and some quality problems. Rains are coming to an end in some areas so harvest activities have increased but the harvest remains very slow overall.”
But it’s coming nevertheless, that record crop.
Luiz Roque, analyst at Brazilian agribusiness consultancy Safras & Mercado, says local farmers were expected to turn out at least 130 million tonnes in 2021.
In January, Safras & Mercado forecast Brazil's soy production at 133.1 million tonnes. But it lowered that in recent days as rains during the harvest spoil quality and hurt yields in midwestern states.
Reuters reported that Brazilian farmers had harvested an estimated 35% of the planted soybean area through last Thursday, the slowest pace in a decade amid March rains. At the same time a year ago, 49% of the area had been reaped in Brazil.
AgRural, an agribusiness consultancy in Sao Paulo, said due to high humidity for the past few weeks “quality problems have been increasing.”
Despite that, last month, AgRural raised its production forecast to 133 million tonnes for the current 2020/2021 season, from 131.7 million tonnes previously.
The projection already factors in lower average yields in most producing regions of Brazil, the consultancy said. However, if rains persist in March, it is possible yields will fall further in some states, in particular the super-yielding soy state, Mato Grosso.
The US Department of Agriculture said on its Agweb.com site on Wednesday it expected domestic soybean supply and use projections for 2020/21 to be mostly unchanged in March, in the world’s largest soybean producing countries.
US crush and exports were projected at 2.20 billion bushels and 2.25 billion bushels, respectively, the USDA website said. It added that ending stocks were forecast to remain at 120 million bushels, down 405 million from last year’s record.
Brazilian Output Could Tilt Balance
This meant that the record Brazilian crop could tilt the balance in the global marketplace, were there to be any slack in demand from the number one buyer China, Price Futures Group’s Scoville said in a note on Tuesday.
Any mismatch could weigh on CBOT soybean prices, despite the United States having sold 98% of its target amount of soybeans for the current marketing year, Scoville said, adding:
“China has been buying for this year and next year in the US, but now mostly in South America. There is little room for error.”
The USDA affirmed Scoville’s concerns at least on the physical pricing front.
The US season-average soybean price is projected at $11.15 per bushel, unchanged from last month, the agency said. Although current cash prices were significantly higher, quotes received have averaged just over $10, reflecting forward pricing at lower levels, the USDA said.
Technicals Suggest 'Strong Buy' For CBOT Soy
CBOT soybeans are up just over 9% on the year at Wednesday’s level of $14.33 per bushel. The market has rallied virtually without stop since the end of May, gaining a total of 70%.
Scoville predicted that the front-month May soybean contract on the exchange could face resistance at $14.65, $14.72, and $14.84 and find support at $14.33, $14.03, and $13.68
Those calls tied in with Investing.com’s own Daily Technical Outlook which suggests a “Strong Buy” for CBOT soybeans.
Should the contract extend its bullish streak, then a three-tier Fibonacci support is forecast, first at $14.42, then $14.47 and later at $14.54.
In the event it reverses, then a three-stage Fibonacci support is expected to form, first at $14.28, then $14.24 and later at $14.16.
In any case, the pivot point between the two is $14.35.
As with all technical projections, we urge you to follow the calls but temper them with fundamentals—and moderation—whenever possible.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. As an analyst for Investing.com he presents divergent views and market variables. He does not hold a position in the commodities and securities he writes about.