January 12, 2010

 

CBOT Soy Outlook on Tuesday: Lower; USDA data adds to near term bearish theme

 

 

Soybean futures on the Chicago Board of Trade are expected to start Tuesday's day session lower, extending the current market down turn on bearish production data from U.S. Department of Agriculture.

 

CBOT soybean futures are seen starting 10 cents to 20 cents lower.

 

The increase in U.S. and South American production serves as the catalyst for initial weakness in the market, with a softer technical picture and worries of slowing export demand as the South American harvest gains momentum seen weighing on prices, analysts said.

 

"The report is neutral to negative for soybeans as higher output is offset by increased demand," said Tim Hannagan, analyst with P.F.G. Best in Chicago.

 

The production and ending stocks numbers are above the average analyst guess, making it tough to find support in the data.

 

However, "after a 60 cent break in prices recently, you have to wonder how much of the report is already priced into the market, and that opens the door for prices to rebound after the initial weakness wears off," Hannagan said.

 

Nevertheless, without a dramatic reduction in U.S. supplies in the USDA reports, the near-term path of least resistance for soybean futures is lower," said Mike Zuzolo, president Global Commodity Analytics and Consulting.

 

U.S. Department of Agriculture projected 2009 U.S. soybean production at 3.361 billion bushels. U.S. production is the largest on record. The average yield per acre is estimated at a record high 44.0 bushels, 0.7 bushel above the Nov. 1 forecast and 4.3 bushels above last year's yield. Harvested area is up 2% from 2008 to a record 76.4 million acres.

 

In November the USDA estimated the crop at 3.319 billion bushels using a yield of 43.3 bushels per acre.

 

Meanwhile, the USDA projected 2009-10 soybean ending stocks of 245 million bushels, down 10 million from the December estimate of 255 million. Analysts on average estimated ending stocks of 237 million bushels.

 

Soybean exports were raised 35 million bushels to a record 1.375 billion led by strong sales and shipments to China and several other markets including Taiwan, Thailand, Egypt, and Canada. U.S. export sales have benefitted from tight competitor supplies resulting from last year's drought-reduced South American crop, USDA said in the report.

 

The projected soybean crush was raised 15 million bushels to 1.710 billion reflecting increased soybean meal exports.

 

Meanwhile, despite the increased crush, soybean oil production was reduced due to a lower extraction rate. With use unchanged, soybean oil stocks are projected at 2.152 billion pounds, down 155 million from last month.

 

Quarterly soybean stocks in the first quarter of the 2009-10 marketing year were estimated at 2.337 billion bushels as of Dec. 1, the USDA reported, below the average analyst estimate of 2.411 billion bushels.

 

A technical analyst said first resistance for March soybeans is seen at US$10.20 and then at Monday's high of US$10.32 3/4. First support is seen at Monday's low of US$10.05 3/4 and then at US$10.00.

 

In overseas markets, soybean futures traded on the Dalian Commodity Exchange settled lower Tuesday in cautious trade after a drop in the CBOT contract to almost US$10 a bushel ahead of the release of USDA production forecasts. The DCE's benchmark September 2010 soybean contract settled RMB31, or 0.8%, lower at RMB4,004 a metric tonne.

 

Crude palm oil futures on Malaysia's derivatives exchange ended lower Monday as high stock levels and weak exports prompted a downward price correction. The March contract on the Bursa Malaysia Derivatives ended MYR29 lower at MYR2,556 a metric tonne.