10 June 2020
- Supply continues to improve as displayed in the Chart of the Week. This trend keeps any attempt for a break to the upside in check. We continue to believe that weak demand is not pulling enough beans further downstream, which is leading to accumulation of supply. The scenario considered here is different from the traditional stance of “high output = high supply”, but the result on the price behavior is often the same.
- Our short-term demand assessment for up and mid-stream demand remains bearish, but there are signs of stronger demand emerging in the medium-term. Our Forward Demand Model clearly shows a marked improvement. The view our model is taking, is that the firmer soybean prices in the last couple of days were partially justified by the emergence of a strong positive signal for forward demand.
- The macroeconomic environment is gradually improving. Evidence suggests that credit is starting to expand in key consumption regions, but the rate of credit creation is not in accordance with the suggested rate made by many governments and/or central banks around the world. Hence demand remains suppressed, which is partially incorporated into our Demand view discussed above. We continue to expect credit to grow as the economies re-open and the demand for credit lines from the economic entities grows. Another strongly bullish argument is the recent movement of our FX Impact Model. The latest value suggests that the purchasing power of key soybean consumers has improved over the last 3 weeks.