Grain Spreads: Soy Complex

Soy Complex

Beans and meal fell this week amid long liquidation as managed money long 120 K of beans and 130 K contracts of meal liquidated a percentage of positions. If felt like the market could of fell further but news out of South America regarding another lowering of the Argentinean bean crop may have for now provided further liquidations. Rallies in wheat and corn may have delayed the selling as well.The 18 Argentine soybean crop estimate was cut to 36.0 million metric tons by BAGE (Buenos Aries Grain Exchange) as abandonment was raised and yields cut. There is noise in the market expecting a final crop of 34.5-35.5 million metric tons which could further curtail their crush pace. It's one reason why meal didn't fall apart and to not sound like a broken record, a rally or break in meal will determine the fate of soybeans until more is known about acreage and planting of US beans in June. As the meal situation could ignite the soy complex with another rally, demand from China looks anything but friendly for price in my view. The USDA announcedthis AM announced that unknown destinations, which is spelled (C-H-I-N-A) cancelled 829,000 metric tons of previously sold old crop soybeans. These cancellations will appear in the weekly sales report next week. Cancellations arent all that unusual in May, but this does underscore ongoing disputes between the US and China, which dont seem to have been resolved. China though did buy168,000 metric tons of soybeans for delivery to unknown destinations this morning. Of the total 56,000 metric tons is for delivery during the 2017/2018 marketing year and 112,000 metric tons is for delivery during the 2018/2019 marketing year. Yesterdaysales of 132,000 metric tons of soybeans for delivery to unknown destinations during the 2017/2018 marketing year. This shell game where China cancels a sizable previously made purchase while entering the market as beans break below $10.00 with smaller purchases is bearish from a demand perspective in my view. I'm watching meal for direction into month end to see if any end user or commercial buying emerges due to the ever declining soymeal market in Argentina. If July meal holds 373.0 into next week, look to be a buyer of the July/Dec meal spread at 8.0 over. I would look for a move to 15.4 over quickly. Stop loss on the spread sits at 4.20 or if we close under 3.73 in July meal. Call or email me with questions at 888 391 7894 or email me at slusk@walshtrading.com

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