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How Much Will US Soybean Demand Rise in 17/18?

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How Much Will US Soybean Demand Rise in 17/18?

May 09, 2017

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

On the eve of the first USDA WASDE (World Agricultural Supply and Demand Estimates) report to include their balance sheet estimates for 2017/2018 I sit here wondering about soybean demand for the upcoming marketing year. Global soybean demand has grown consistently and rapidly over the last two decades and China has been the leader. Will it be more of the same next year?

Domestically, soybean demand has shown signs of waning recently. The soybean crush has fallen short of expectations in the last few months and will likely prompt the USDA to lower their expectations for the current marketing year. If this trend were to continue it would be difficult to expect a significant increase in domestic soybean demand for next year. This can certainly change however, especially if soybean meal exports were to pick up significantly.

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The real optimism for soybean demand comes from exports. In the last 20 years US soybean export demand has been increasing on a consistent basis. China has had a seemingly insatiable appetite for soybeans and the hope is that other regions are on a similar path. On the other side of that coin global production of oil seeds has increased dramatically in recent years led by good crops in the US and South America. China has also made a push to increase soybean production and this could be the key going forward.

China accounts for nearly two-thirds of global soybean imports according to the USDA. However, the USDA said in their outlook forum back in February that they expect China’s soybean imports to slow on a percentage basis after nearly two decades of double digit growth. This could be largely due to the push for more soybean acres domestically in China. Still, growth is growth and Chinese demand along with growing demand in the rest of Asia and the Middle East/North Africa region should support an increase in 2017/2018.

The problem may be that South America, and Brazil in particular is coming off a record crop that exceeded expectations by a significant margin. To make matters worse producer sales have been at a slower pace than normal meaning there will be a lot of competition in the global export market. This, along with (what is now) a favorable currency advantage could put a significant dent in US exports and could offset much of the growth in global demand.

So, it will be very interesting to see what the USDA has to say on the subject on their first 2017/2018 WASDE balance sheet. In years past the USDA has been conservative on their growth estimates only to be proven wrong down the road. Last year they were more aggressive on export demand and they were pretty close to where the current marketing year exports look to end up. This leads me to believe that they will be on the aggressive side again this year. However, I do have my concerns and for now at least I will stay on the more conservative side (looking for US soybean demand to increase less than 100 million bushels) for my 2017/2018 balance sheet. I think we should all keep these factors in mind and take any aggressive demand expectations with a grain of salt, for now.

We have complimentary 2017 commodity reference calendars available. They are a little bigger than pocket sized and very useful if you follow markets. You can sign up for yours here – http://www.zaner.com/offers/calendar.asp (Shipping to the US only)

Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried – (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.Follow me on twitter @thetedspread if you like.

 

JulyCorn Daily chart:

JulySoybeans Daily chart:

JulyWheat Dailychart:

Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 or tseifried@zaner.com

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION’S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE’S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.

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