Soybeans at the crossroads
Soybeans as a commodity have one primary customer in China, a customer that makes up almost 60 % of the total demand. This demand has been under pressure, with numerous exogenous shocks impacting imports. Furthermore, on the supply side, the three top producers in Brazil, USA and Argentina have had different factors impacting the production fields.
China locking
down again caused the bull run that lasted the first half of 2022 to grind to a
halt. With prices trending downward, the more recent protests saw sentiments
shift, with faith in strong demand resurging. China has since eased some
restrictions in certain cities, but demand is still expected to suffer as the
somewhat closed economy struggles to reopen.
On the supply
side, the biggest supplier for China in Brazil is coming off a previous poor
crop season, with yields in January of this year being lower than expected.
While the current planting season is underway, yields for January and February
look to be booming. With favorable weather and higher acreage, supply is
looking set to push prices in the downward direction.
The second-largest
producer and second-largest consumer in the USA has had a booming year, mainly
driven by the surging renewable diesel industry. Soybean oil is one of the
primary ingredients, and as production capacities for renewable diesel have more
than doubled since the beginning of 2022, demand is high. This production
pushes the crush margin and thusly escalates prices.
The Argentinian
supply is the potential decider that can edge out the factors described above.
As a safeguard against inflation, farmers in Argentina have been stockpiling
their soybeans. As of late November however, the government instituted a
preferential exchange rate scheme in order to bolster central bank reserves.
This pushes farmers to offload supply and bolsters export.
Considering the
above, the demand seems stable and robust in the USA while being shaky in
China. On the other hand, supply seems both strong and poised for a potential sharp
increase. Putting it all together, although prices might see short-term
positive momentum owing to developments in China or Oil prices, bolstering
supply might just swing the pendulum.
Soybean Futures Jan23 (CBT $/bushel), daily one-year price chart
Mini Futures
Soybean Futures Jan23 (CBT $/bushel), weekly five-year price chart
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis.
Fibonacci numbers are a sequence of numbers in which each successive number is
the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
Risks
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