Strong US output to cap Soybean gains

Trade Idea Commodities – Strong US output to cap Soybean gains

Adverse weather hampers the South American harvest

Trade Idea Commodities – Strong US output to cap Soybean gains. On the 10th May, the release of the US Department of Agriculture’s (USDA) monthly demand and supply estimates triggered a sharp rally in the price of soybeans, ending a downward trend that has lasted just over two years (see Figure 1). The move came as the report detailed the adverse impact of recent weather conditions on the ongoing soybean harvest in Brazil and Argentina, countries which together are responsible for approximately 54% of global soybean exports. The report also included the first projections for the next crop year (2016/17), with global soybean stocks estimated to fall to a three year low. While clearly the recent rally was somewhat grounded in tighter market fundamentals, we believe it to be overdone and have potential to correct lower in coming months. News of good progress with US plantings and strong production estimates should catalyse this move.

(click to enlarge)

Longs build to the highest on record

Indications of supply side tightening has caused soybean prices to rally 25%* this year, making the commodity the second strongest performer in the grain and seed complex. The price rise has been accompanied by a rapid accumulation of speculative long positions, which have now reached the highest level on record. The pace and extent to which these positions have amassed would suggest that the recent rally could be quickly undone should fundamentals wane.

Production remains robust

Currently, in the US the 2016/17 soybean crop is being planted. The latest USDA weather bulletin shows that as of 15th May, 36% of the process is complete (4% more than the five year average) and weather conditions are “favourable” for future progress. At this stage in the crop cycle it is difficult to estimate the future output from the US, which makes next year’s production estimates subject to significant variation. However, weather currently appears conducive to a strong yield and we believe that this will be reflected in USDA estimates in coming months. Furthermore, signs of an improving supply picture in the year ahead due to a favourable La Niña weather pattern, should override concerns of reduced stocks in the current year, placing soybean prices under pressure from current multi year highs.

Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:

•         ETFS Soybeans (SOYB)
•         ETFS 2x Daily Long Soybeans (LSOB)
•         ETFS 1x Daily Short Soybeans (SSOB)
•         ETFS EUR Daily Hedged Soybeans (ESOY)
•         Swiss Franc Daily Hedged Soybeans (CSOY)

The complete ETF Securities product list can be found here.
________________________________________
ETF Securities (UK) Limited (registered number 07443535) is incorporated in England and Wales with its registered office at 3 Lombard Street, London EC3V 9AA and is authorised and regulated by the Financial Conduct Authority (FCA reference number 538634). The information contained in this e-mail and any attachments may be confidential. If you are not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this e-mail is strictly prohibited. If you have received this e-mail in error, please notify the sender and permanently delete the e-mail and any attachments immediately. You should not retain, copy, or use this e-mail or any attachment for any purpose, nor disclose all or any part of the contents to any other person. While we operate an anti-virus program, we do not accept responsibility for any damage whatsoever caused by viruses being passed.