Soybean futures: technical indicators pointing to a strong buy

US soybean prices rose to the highest level in a month as the weather remains dry over the planting areas in the key US Midwest crop belt. One- to two-week forecasts for the region, one of the most important global production areas, indicate that, bar a short drizzle, the area will remain dry in the coming days.

Higher planting in the wake of the Ukraine war last year combined with high inflation and weaker consumer demand caused soybean futures prices to drop by 18% between March and the end of May.

June has seen a revival in prices and this agricultural commodity is now trading up 10% from the May low (the lowest level since December 2021). CBOT soybean futures are at $14.36 a bushel, not far off the one-month high of $14.6 reached earlier this week.

Soybean supply and demand picture

The US Department of Agriculture (USDA) expects the domestic soybean crop to be good to excellent, although it has recently downgraded its forecast by 3 percentage points to 59%. This is just short of the average analyst estimate of 60%.

In Argentina, another key production region, the level of soybeans ready for export has slipped to the lowest level since the start of the noughties and local ports are reporting slower-than-usual arrivals of the crop. However, this decline will be mostly offset by a slightly bigger harvest in Brazil boosted by favourable weather earlier this year.

These three countries are the world’s largest producers of soybeans with the US growing 124 million tonnes last year, followed by Brazil’s 118m tonnes and Argentina’s 38m tonnes.

The demand side remains stable although the distribution of imports has changed since the start of this year, particularly after China’s economy picked up pace after the loosening of COVID restrictions. While the EU reduced its imports by about 12% (which works out at about 1.56m t) this has been more than offset by slightly stronger demand from China (a 2% increase, equivalent to 2m t).

Demand in the US also remains strong with oilseed processors processing almost 178 million bushels of the crop in May, the highest level in five months, according to data from the National Oilseed Processors Association. Soyoil stocks among NOPA members registered a decline.

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Technical indicators point to a strong buy

Since prices started turning around in June technical indicators have also become more positive and are giving a strong buy signal. At the moment, only the five-day moving average indicates a sell (at 1440.08), while all the longer-dated MAs indicate a buy: 20-day at 1429.44, 50-day at 1408.51 and 100-day at 1397.1. The Relative Strength Indicator (RSI) is also moving higher and is looking ready to break 50, a level that indicates neutral sentiment.

El Niño

The big unknown for the rest of the year is the developing El Niño which will have a strong impact on the crops in Latin America and in the US. Weather forecasters say there is a more than 56% likelihood of a strong El Niño this year and more than 84% chance of a moderate pattern. While the El Niño tends to bring favourable conditions for raising crops in Brazil and Argentina, it presents itself in the form of heavier rains in parts of the US.

WisdomTree Soybean Oil ETFs