Who's Buying US Soybeans?

• Analysis of the soybean market remains split between a neutral short-term outlook and bullish long-term view.
• The long-term outlook could keep funds interested in buying, all while keeping a close eye on marketing year total export sales numbers.
• The deferred May-July soybean futures spread indicates there is some concern about US supply and demand down the road, once more is known about Brazil's 2024 soybean crop.

When it comes to the US soybean market, most of the chatter and noise is of a bullish nature. If we take a step back and analyze the market both technically and fundamentally, we still get a long-term bullish outlook. Short-term it’s a bit different story as the commercial side seems more comfortable with the initial supply and demand situation, all while it doesn’t take much to convince noncommercial traders to liquidate some of their net-long futures position. In the end, though, the answer to the question of “Who’s buying soybeans” is both funds and merchandisers, a combination that usually leads to higher prices down the road. 

Let’s start with the technical side of the soybean market. As I talked about last week the Barchart National Soybean Price Index (ZSPAUS.CM), the weighted national average cash price and intrinsic value of the US soybean market, completed a bullish spike reversal on its monthly chart at the end of October. This told us the long-term trend of the market had turned up, ending the downtrend that began at the close of June 2022 as the NSPI completed a bearish key reversal. The fact the long-term trend of the intrinsic value of the market had turned up could act as an invitation for funds to increase their investment in soybeans. 

The most recent CFTC Commitments of Traders report (legacy, futures only) showed noncommercial traders holding a net-long futures position in soybeans of 16,260 contracts (as of Tuesday, October 31). This was actually a decrease of 20,194 contracts from the previous week, a change driven in large part by a reduction in long futures of 31,510 contracts. When we see this type of change, it is not as bearish as if it had been more heavily influenced by new short positions being added. Instead, funds reportedly covered 11,316 contracts of previously held short positions. The bottom line of all this positioning is it left the door open for new buying to emerge. This past Tuesday saw the January futures contract (ZSF24) close at $13.62, up 51.5 cents from the previous Tuesday’s settlement indicating funds were indeed buying again. 

If Newsom’s Market Rule #6 tells us “Fundamentals win in the end”, is there a fundamental reason for funds to continue adding to their net-long soybean futures position? A look at the market’s Cost of Carry table shows us short-term and intermediate-term fundamentals remain neutral, with both the January-March and March-May futures spreads covering a neutral level of calculated full commercial carry (cfcc)[i]. As of Thursday’s close, the Jan-March spread was covering roughly 41.5% cfcc while the March-May covered 36%. This tells us the commercial side is keeping a close eye on the situation in Brazil, but for now there is plenty of available US supplies to meet demand. 

But what about further out? The May-July spread closed Thursday at a carry of only 4 cents and covered 12% cfcc. This means the commercial side is concerned about having supplies to meet demand once more is known about Brazil’s 2024 crop production. Does this fit with what we see in weekly export sales and shipments updates for the US? The latest set of numbers showed US total export sales (total shipments plus unshipped sales) of 891 mb, 26% less than the same week last year. Within that number we see China had 62% less US soybeans on the books than a year ago while unknown destinations held 22% fewer bushels. We all know when and why the US became a secondary player in the global soybean market, but what the May-July futures spread is telling us is there could be an uptick in export demand later this marketing year. 

That same weekly update also showed export demand for US soybean meal is running stronger than a year ago, with total sales up 40% compared to the same week last year. Much of this is due to Argentina’s weather struggles last year, meaning there is time for US crushers to churn out meal for the global market. 

In the end, we are left with a long-term outlook that does indeed remain bullish, meaning buying could continue to come from both noncommercial and commercial traders. The wildcard, though, will continue to be weather. We will get our best read on this by watching the May-July futures spread over the coming months. 

[i] This goes back to the table I set up decades ago: 33% or less is considered bullish, 67% or more is considered bearish, and everything in between varying degrees of neutral. 

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