Todd's Take

By Todd Hultman
DTN Analyst

Believe it or not, assessing the bullishness or bearishness of a grain (or oilseed) market is usually not a hard call, especially after doing one's homework and using the tools of DTN's Six Factors Market Strategies. The future is always uncertain, and watching for surprises keeps us on our toes. Typically, though, it is not too difficult to tell when a particular grain is showing too much demand (bullish) or too much supply (bearish).

This year's stubborn exception has been soybeans. I talked about some of the frustration in a Dec. 13 article, "Soybean Tensions Run High," and while we've learned a few more things since then, the outlook still remains a tough call.

Since December, USDA's estimate of U.S. ending soybean stocks for 2016-17 has dropped from 480 million bushels to 420 mb, and even though USDA's crop estimate for Brazil increased from 102.0 million metric tons to 104.0 mmt, its estimate of Brazil's ending soybean stocks was trimmed from 131 mb to 122 mb for the new season.

Demand remains the wild card in the final seven months of 2016-17, and in spite of wide agreement that Brazil is harvesting a record soybean crop, it is still not clear if the world has too many soybeans or not enough.

Turning to the charts for clues has only added to the frustration as the price behavior of soybeans has been as erratic as Sybil this winter. March soybeans started the year with a new six-week low below $10.00 and then shot up to a new six-month high at $10.75 two weeks later after heavy rains fell in Argentina.

Last week's bullish crush report from the National Oilseeds Processors Association sent December soybean meal to the contract's highest close to date and looked hopeful for soybeans. But March soybeans finished the week lower at $10.32 1/2, dragged down by a new four-month low in soybean oil.

The main bearish concern throughout this whole time has been the gradual approach of Brazil's record harvest and the threat of export competition it brings. February is known as the time of year when Brazil's soybean exports typically increase and U.S. exports decrease. But does that necessarily mean that U.S. soybean prices will fall?

To learn more about this time of year, I took a look at Brazil's production record and found that they achieved record harvests in six of the past nine years. I then looked at DTN's National Soybean Index of cash prices for those same six years to see when seasonal highs were made.

Were seasonal highs made early in the year, before Brazil's exports spiked higher? No. All six seasonal highs were made after mid-May. The earliest high was May 22, 2014. The latest high took place in December 2010, after a late-season drought.

No, I cannot guarantee that soybeans will offer higher prices in 2017, but this year's record harvest from Brazil is not the death sentence one might expect -- prices have seen this before. Yes, Brazil's 3.8 billion bushels of soybeans are important to the market, but when the world is consuming more than 12 billion bushels a year, prices are apparently in no hurry to make a judgment.

Currently, March soybeans are holding roughly sideways after a roller-coaster winter, staying above the support of their five-week low at $10.17. Soybeans have plenty of bearish concerns in 2017, but judging from past patterns, the year's high could still be months away.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

(AG/SK/BAS)