16 July 2020
- Last week we wrote: “If this accumulation of supply intensifies in the next 3-5 days, the recent market strength may not hold ground for long.” The looser supply conditions along the global bean supply chain we spoke about ultimately helped bring the price lower. Weather conditions remain key swing factor for prices. Our proprietary climate model turned decisively bearish 2 weeks ago suggesting that stress is piling up for early-mid July, the price reaction followed.
- The downturn in demand can be seen in our Implied Forward Demand Index. The divergence between projected and realized demand and soybean price is clearly visible for the months of June and July. We are also concerned that the negative pressure is not abating as we enter the 2H July. The model will reveal the forecasted demand for August next week. Downstream demand is looking significantly better in comparison, but it is coming up from a very low base.
- The macroeconomic environment has somehow improved, thanks to better Asian and European macro data. Our immediate concern is the price-negative signal we extract from the FX markets – see the Chart of the Week. The downward pressure is unlikely to abate this or next week, which imposes a ceiling on any attempt for the price to rally.