11 December 2019
- We have been counting on a tighter supply in December and early January for a while. Data suggests that supply is starting to contract, which is one of the reasons behind the on-going market strength. The impact of supply on the overall soybean market price formation has increased strongly from the low of 24% during week #41 to 50% this week, which reaffirms the price action. Unfortunately for the bull’s camp, the position of the proprietary Climatic conditions model displayed on the figure below is deteriorating again. The red dashed line is the 4-period moving average, or MA(4). If correct, the latest reading of the model implies lower risk of damage to the crop yield in Brazil.
- Our short-term demand assessment for up and mid-stream demand has improved further. This is reflected by the spot and forward soybean demand metrics, both of which are now aligned. Downstream demand in Asia, which underpinned the market rally in September and October, didn’t look very convincing in November. The conditions are starting to shift, but with margins still on a downtrend, questions about the support behind the price rebound remain.
- Our short-term macroeconomic view remains outright bearish. Credit, and therefore trade finance, has not been flowing as smoothly as it did during weeks #30-40. The result was the price decline during weeks #42-49. Conditions have not changed for the better which is likely to establish a ceiling above any price strength.