Outlook for soybean keeps looking dismally

Summary:

• US Department of Agriculture slashes its soybean exports projection for the 2018/2019 season
• It projects a record level of soybean ending stocks in the corresponding period of time
• Soybean price crashes its major support, more pain for bulls ahead

The US Department of Agriculture sent a really gloomy message for soybean investors when it decided to slash its exports estimation for the upcoming 2018/2019 season. Even as soybean prices did not fell on Thursday immediately after the release, mainly due to a surge in corn prices, more falls seem to be only a matter of time given the grim outlook for this grain.

The USDA cut its soybean exports estimation substantially sending the season-end ending stocks forecast to the highest ever. Source: Bloomberg, XTB Research

The July’s WASDE release drew the major attention as investors had wanted to inspect the release thoroughly in order to seek any ripple effects coming from the ongoing trade war between the US and China. They actually found some of them, and it was not a hard to do so. The paramount point for soybean investors is a significant reduction of the US exports projection for the 2018/2019 season to 2040 million bushels from 2290 million bushels estimated in June, this is the lowest number since April 2017. The state agency blamed directly tariffs for the weaker prospect for soybean as they increase costs for abroad investors and cause some of them to stop buying the commodity.

Let us remind that China signalled earlier this month that it will cancel more US soybean shipments which some Chinese companies have committed to buy in the year ending 31 August. Notice that after tariffs are taken into calculations it turns out that soybean coming from Brazil is still cheaper compared to this from the US despite a gargantuan increase of Brazilian soybean prices over the recent weeks. The one issue could be a relatively limited supply of Brazilian soybean at present as China usually switches to buying Brazilian soybean at the turn of a year. That said, one may suppose that until then Chinese companies (at least some of them) are likely to suspend their activity on the back of the shrinking amount of soybean.

By and large, even as all grains are outstandingly cheap relatively to, say, industrial commodities (the Bloomberg Agriculture Subindex fell to its lowest level on record last Tuesday) there are no too many incentives to consider buying them. The backdrop could upend once the US and China are able to hammer out a deal resulting in reversing lately slapped levies, but it does not seem to happen any time soon.

Looking at a weekly time frame we may spot that soybean prices are currently breaking their relevant support nearby $850. Therefore, one may suppose that a close below this level could be a sufficient technical signal (being underpinned by fundamental aspects as well) to let bears push further toward another support at $790. Source: xStation5