This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
First the good news. Exports this week were at the center of the range of expectations for everything reported after being very disappointing last week. So it does not look like they have come to a screeching halt. Ethanol production also rebounded this week compared to market expectations of another small decline. We continue to produce ethanol at a pace well above the pace needed to reach USDA’s revised estimate for the year. The bad news is that beans surprised just about everyone with a complete meltdown this week. In Wednesday’s washout they broke through all levels of support and traded down to multi-year lows. As with many big moves like that, there are multiple causes and many opinions on what was the main cause.
The weather in South America has been great and it did not get dramatically better in the last week. One thing that has been gaining momentum is the strengthening in the Brazilian currency. Brazil is facing a lot of monetary challenges and the market has been skeptical about the steps they have been taking to correct it. On top of that, the US dollar has been gaining strength in its own right so that has taken the real to multiple all time lows against the US dollar. Brazil is a big ag exporter so as their currency weakens it makes the value of their exports go up in the local currency. So with exceptional crop yield potential and prices in their currency rallying, Brazilian farmers were big sellers.
Some Midwest storage contracts are approaching the end of the free storage and with prices dropping there were a lot of US producers who threw in the towel as well which added to the pool of sellers. The market could not hold any support levels and the technical picture turned more and more bearish bringing more money in on the sell side. A selloff in palm oil and soybean oil brought even more sellers. The possibility of losing some tax credits for biofuels was just a little more icing on the bearish cake. A snowball rolling down a hill gaining size and momentum is a very apt metaphor for soybeans.
Soybeans managed a positive close on Thursday leaving some hope alive for a dead cat bounce if we can manage to close higher today as well. We need to be sellers on whatever bounce we can manage. South American weather is the best chance we have to see a sustained rally and since they have all the water they need for a little while, it will be some time before that can happen. Some bullish news about US biofuel policy would also be welcome if they could manage. I would accept it from either the new or the old administration but not holding my breath.
Volume will continue to drop precipitously as we enter the holiday week next week and we will not gain it back until after the first of the year. We can see added volatility when volumes drop so low. The next big data dump we get will be USDA’s Jan Supply and Demand update and stocks report.