World News: Soybean market dynamics amid drought and weather changes

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World News: Soybean market dynamics amid drought and weather changes
Table of contents
  • Rain in Brazil ends historic drought, CBOT soybean futures fall 10% to a four-year low.
  • Despite smaller-than-expected crop, recent rains stabilize estimates and satisfy global demand after a 15% drop in 2023
  • Cautious money managers are reducing long positions in light of the good harvest in Argentina, leading to new lows in soybean oil and soybean meal futures and signaling market uncertainties.

Soybean market softens as rain ends Brazilian drought

Recent rains ending the historic drought in Brazil’s key soybean state have prompted speculators to sell, sending the most active CBOT soybean futures to a four-year low of $12.36 a bushel. The 10% drop since mid-November is the steepest in the first five sessions of 2024 and is reminiscent of 1984, when the US dominated soybean exports (now below 30%).

Soybean futures suffered a 15% decline in 2023, the first annual loss since 2018, as South American supply was expected to recover in early 2024. Although the Brazilian crop is smaller than expected, recent rains are stabilizing estimates and providing satisfaction for global demand, especially with Argentina’s recovery.

The ominous start to 2024 is unlikely to set the tone for January as historical data shows that soybeans have risen in seven of the last 10 years. It is worth noting that despite the declines in January 1984, soybeans finished higher in the following months.

Caution on CBOT soybean futures amid crop optimism

In the week ending Jan. 2, money managers turned cautious on CBOT soybean futures, going net short by 11,629 contracts. They also significantly reduced their net long position in soybean meal, which contributed to a decline in futures.

This shift was due to favorable harvest conditions in Argentina and expectations of higher production. Money managers’ net short position in CBOT soybean oil futures and options reached 50,554 contracts, the highest level since June 2019.

Both soybean oil and soybean meal futures hit recent lows, with soybean meal at its lowest price since December 2021. At Monday’s settlement, soybeans and soybean meal for March delivery traded in technically oversold conditions, highlighting the ongoing uncertainties and challenges in the CBOT soybean markets.

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