Just weeks ago soybean futures prices looked poised to sink well below the $12 threshold and fall potentially $1 lower as traders anticipated a larger crop in South America and a large U.S. crop to be planted in the spring of 2022. Trade was also monitoring the fact that ending stocks on USDA reports had been slowly creeping higher since May of 2021.

The Nov. 9, 2021 USDA report again confirmed that soybean supplies were indeed getting larger with ending stocks increasing to 340 million bushels (up from 320 mil bu. the month prior). However, this increase was not as large as what trade was anticipating the number to be.

The surprising result was a bullish key reversal on daily charts, and a near 60 cent rally off the morning price low.

This technical bottoming action on daily charts triggered short covering from traders in the following days with prices now $1 off their lows in just over a week!

Where to from here?

Technicals

With the impressive $1 rally already seen, one has to wonder how high soybean prices can go, especially as soybeans are, for the moment, fundamentally the “follower” in the grain complex as corn and wheat fundamentals remain a tad friendlier.

Technically speaking, the next short term price hurdle for the January 2022 soybean futures contract to leap over is $13. This is a major resistance area as it is where the 100-day and 200-day moving averages meet. Also, $13.04-1/4 was the high from Sept. 30,^, which was also the date of the bearish USDA Quarterly Stocks report.

A price close above $13 would likely trigger additional fund and technical buying from traders and would open the door to $14 January futures prices.

Seasonals

Also giving confidence to a potential further rally in soybeans is the fact that seasonally, soybean futures tend to find a “pre-winter price low” in mid to late November. Following this November low, soybean futures prices tend to work higher well into mid-January as both the U.S. harvest low is in place, and trade switches its focus to South American weather and a fight for spring planted acres in the States.

Soybean meal rally

Just one month ago I wrote how soybean meal might be the next big thing as it was undervalued and had the potential to be a cheaper feed substitute.

December soybean meal prices were at $329.20 the day of that was published and have rallied to an astonishing $377.90 in just one month’s time. What has truly propelled this price rally was something new to the situation -- tight lysine supplies.

China is the main supplier of lysine, and lysine is needed as an additive to dried distillers grains to aid in boosting protein in feed rations. If lysine is not available, livestock producers may switch feed rations toward soybean meal. Because of this sudden “new demand” for soybean meal, soybean prices are gaining a boost as crush demand is expected to remain strong.

Funds are buying

Due to inflationary concerns, funds are flocking back into commodities and are buying in droves.

Related: Commodity comeback or commodity capitulation?

The most recent CFTC report showed that as of Nov. 9, funds were net long a mere 12,137 contracts. This is in sharp contrast to their peak of buying earlier in 2021 when they were long 180,014 contracts as of the April 27 CFTC report.

The next CFTC report will be released on Friday afternoon, and traders will be eager to see the official tally of their one week buying spree.

Fund traders pay attention to seasonal price patterns, and technical chart patterns as well as supply and demand fundamentals. And right now, the conditions seem to be right to entice them to invest in soybeans and other ag commodities.

South American Weather

The soybean crop in South America is nearly planted in mostly ideal conditions. Getting the crop in the ground is one thing, but obviously weather during critical growing stages is entirely another. Weather forecasters are putting better odds on hot and dry La Nina weather conditions for the coming months in South America.

This news was also supportive to soybean prices this week. The world needs a big crop from Brazil and Argentina in order to keep global supplies sufficient. Should a true weather issue emerge in the coming weeks, that will support a soybean rally even further.

Monitor this market closely

While soybeans fundamentals are currently not quite as friendly as the corn and wheat story, it remains a narrative that needs to be monitored closely. It was impressive that soybean futures prices were able to rally $1.00 in a week. Also impressive is that soybean futures prices on charts are now trading above a down trending technical line that had been held in place since early June.

Lastly, remember that in the big picture in the United States, there are currently nine grain and oilseed commodities with tight ending stocks (winter wheat, corn, soybeans, oats, barley, canola, spring wheat, cotton and sorghum), and all are fighting for acres for this upcoming growing season. To have nine commodities all with tight supplies at the same time is both historic and unnerving.

With inflation concerns, tight supplies, strong demand, questionable upcoming growing season in South America, and a fight for acres for this upcoming U.S. growing season, this soybean story may only be hinting at the beginning of what may come for prices in 2022.

Reach Naomi Blohm: 800-334-9779 and [email protected]

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