Soybean Rally Done 'n Over?

[errolanderson]

Wow! . . . that can only decribe the volatility in July soybeans today. At one point, July beans were within 18 cents of limit up, then the bottom fell out. Have been watching markets for decades, but today was a weird one.

These are the factors that collided that triggered one confusing price day.

1. Weekly U.S. soybean exports over 1 million MT were considered superstar. Argentina port workers strike was an impact.

2. But Midwest basis levels and cash prices have been in a steady decline all week. It appears that cash bean buyers have been flooded with farm deliveries to meet nearterm sales. They dumped the basis.

3. Rumblings that a Chinese crusher may been caught with unpriced basis contracts may have created the squeeze within 1 hour of close today. July beans were rocketing more than 50 cents/bu higher at tht point.

4. Then cawammo!! . . . $15.50 plus beans turned into 14.95/bu beans in a blink.

5. This no doubt triggered technical damage, Bearish key reversal?

6. Now what and how will canola be impacted?

Group . . . throwing these comments out there as this appears to be unusual market volatility with cash and futures going their own direction. To me, it doesn't smell good.

Other thoughts out there? . . . .

[jdepape]

My main focus is on basis and spreads.
The FARMCo Canola Basis Index dropped again - now down to 10.47 over July. That's five days in a row. Not bullish.

Also, Bunge has changed its pricing over to the Nov from the July. Now instead of 20 over July they are bidding 105 over the Nov. Avoiding the July sends the signal that their focus is beyond that. Others that have stayed pricing off the July have dropped their basis too.

The July/Nov inverse, a good indicator of nearby tightness is also waning - down about $10 in the last two days.

Last year, between May 1st and the first delivery day of July there was over 1 mmt of EFP's - exchanges of futures for cash - and the open interest dropped accordingly. I can't imagine anyone being short July without having a plan on how to liquidate, like with an EFP.

None of these things point to "fireworks" in the July.

[jdepape]

July/Nov canola now around 75 over.

July down more than $8, Nov up close to $7.

I wouldn't buy July right now with someone else's money.

We've been saying for a couple of weeks now to lock in the basis. And to never, ever, ever, carry inventory through an inverse.

It's anyone's guess as to when to price in an inverse - it depends on if you want to roll the dice or not. The one thing to remember about inverses due to tight old crop supplies is that the nearby month (July) needs to divorce itself from the rest of the market. It has to do it on its own. So, although soybeans have been helping, for fireworks in the July canola, it's gonna happen regardless of what soybeans are doing.

July/Nov now at 80 over - it's gonna be a bumpy ride.

[charliep]

Not your soybean topic Errol but some of the fundamental numbers for week 42.

[URL="http://www.grainscanada.gc.ca/statistics-statistiques/gsw-shg/2012-13/week-semaine-42/gsw-shg-01-eng.htm"]CGC week 42[/URL]

<a href="http://www.copaonline.net/documents/COPAWEEKLYMAY222013.pdf">COPA May 22</a>

For what it is worth, a couple of comments.

I suspect the size of the canola crop has been under estimated. Similar comment farm stocks. Canola deliveries are slowing but still entering the elevator system.

As Errol has indicated, the export and crush side are also slowing - a reality of what canola is left over on farms. Will be interesting to watch what grain companies prioritize for grain movement this fall in their logistics planning and asset utilization. Historically, grain companies have had a large Chinese canola program on to pull off the combine deliveries. This year? Wheat? The market is still in the process of adapting to the new world.

[charliep]

For those that like numbers, total Canadian canola supplies are about 14.1 MMT (production 2012 plus August 1, 2012 carryin). Deliveries are 13 MMT to week 42. Commericial stocks week 42 - 700,000 tonnes. Assumed farm carryover - 400,000 tonnes.

[jdepape]

FARMCo basis index down for the sixth day in a row - now sitting at 10.26 over July.

July/Nov inverse dropped for the third day in row - down to 77.00 over.

July open interest slipping as well. Longs getting out.

Like I said before - I wouldn't buy this spread (or the July outright) with your money.

And remember - don't ever, ever, ever, carry stocks through an inverse.

[jdepape]

Charlie - just got around to checking the stats. Canola deliveries to date are 11.5 mmt not 13 mmt. (13 was last year)

implies onfarm stocks of 1.9 mmt.

[charliep]

Thanks for correcting John. Senior moment. That makes things a whole lot less tight. If exports/crush move along at 200,000 tonnes per week over the next 10 weeks (2 MMT), that would put carryover at 600,000 tonnes - likely where most S&D estimates are at.

[cottonpicken]

bearish?key reversal?i dont agree with that tech
analysis,break below 13.50 and you've got my
attention,things look pretty good imo.

[errolanderson]

agree cotton . . . breaking the $14.50 area would break the overall uptrend.

but believe July beans have a pronounced spike top in place.