15 October 2020
- Supply continues to increase which is a major cause for concern. This is not related to any current US or next Brazilian crop yield considerations, it is formed purely by shifts along the global supply chain for beans. Such strong negative divergence between supply and price cannot be sustainable, as the price will always be expected to follow its fundamentals and reverse in the direction of (rising) supply. This statement is of course valid in the case of the demand being unable to offset the on-going supply shock.
- Our spot demand view remains bullish. As discussed last week, the prospects for demand appear supportive only in the very short-term as the data continues to suggest that weakness is forming for late October and early November – see the flattening and gradual decline of the red dashed line in the Chart of the Week.
- As suggested in our previous publication, the macroeconomic environment remains supportive of the soybean price mainly thanks to strong economic recovery in Asia. Early indicators for October point in the same direction. This surge in demand continues to be driven by stronger credit creation and stronger credit velocity. The critical mass of market participants appears to agree with this statement, as the speculative net long positions kept increasing throughout the period. We remain very cautious for the macroeconomic prospects of key soybean consumption regions as we approach November.