Brazil's Crop Forecast Cut, and Potential Correction Amidst Chinese Buying Slowdown

The soybean market experienced modest gains, rebounding from Tuesday's losses, with the exception of the lightly traded January contract. Rainfall is forecasted in some of Brazil's drier areas until mid-month, mitigating concerns, but damage from earlier in the growing season and acreage switches are noted.

CONAB's Thursday estimate reflects the impact on Brazil's soybean crop. Approximately half of the crop is in the pod setting or filling stage. Lower projections for Brazil's crop could create export opportunities for the U.S. Argentina's conditions remain favorable. Soybean meal and oil are supported by commercial activity before CONAB's report and a positive response to Tuesday's crush data.

StoneX, an agribusiness consultancy, has reduced its projection for Brazil's 2023-24 soybean crop from a potential record of 161.9 million tonnes to 152.8 million tonnes due to insufficient rainfall in crucial growing areas. Brazil, the world's largest soybean producer, achieved a record harvest of 157.7 million tonnes in 2022-23. Irregular showers persist in most soybean fields, impacting top-producing state Mato Grosso. Some states faced delays in soybean planting, and weather conditions will influence final harvest numbers. StoneX also lowered its soybean export forecast to 95 million tonnes. The dry spell led some farmers to harvest soybeans early, facilitating winter corn sowing.

Trade dynamics between the U.S. and China, major players in soybean trade, have been volatile. U.S. farm exports to China, particularly soybeans, saw significant declines from mid-2018 to the end of 2019. Discussions about revoking China's most favored nation trade status have surfaced, aiming to reduce U.S. dependence on China. While acknowledging unfair trade practices, some caution against drastic measures, emphasizing the irreplaceability of the Chinese market for American soybean farmers.

Despite the initial dip, CBOT soybean futures rebounded on Wednesday as the market responded positively to favorable rains in Brazilian crop areas. Short covering, contributed to lifting CBOT soybeans after their recent declines. However, the soybean market faces ongoing challenges, with buyers yet to see the urgency in increasing U.S. soybean imports to compensate for potential shortfalls in the Brazilian crop. Expectations of increased production in other South American countries, such as Argentina, Paraguay, and Uruguay, further contribute to the cautious market sentiment. The strengthening U.S. dollar, coupled with improved weather conditions in South America, adds complexity to the soybean market dynamics in the short term. StoneX analysts, while reducing their estimate for Brazil's 2023/24 soybean crop, suggested that higher supplies from other South American producers might offset the losses.

Soybeans encountered downward pressure at the outset of 2024, and the bearish trend appears likely to persist despite potential opportunities for end-user bargain hunting. Traders are grappling with uncertainty surrounding actual soybean production in Brazil, introducing a variable likely to influence prices throughout the South American growing season.

Technically analyzing the situation, experts note that the sharp decline in soybean prices at the beginning of the year created a gap in the chart, providing a potential correction target between US$12.9075 and US$12.9675. However, analysts cautioned that filling this gap might be a gradual process, particularly as Chinese buying has currently slowed. The front month soybean futures, starting 2024 with a lower gap, are approaching their October low at 1,268, potentially providing interim support, while the June low at 1,257 becomes the subsequent key level if the support is breached.

Data for Technical Analysis (1H) CFD US Soybeans Futures - Jan 24 (ZSF4)

Resistance : 1276.34, 1277.38, 1279.05

Support : 1273.00, 1271.96, 1270.29                            

1H Outlook

Source: Investing.com                                              

Buy/Long 1 If the support at the price range 1271.00 - 1273.00 is touched, but the support at 1273.00 cannot be broken, the TP may be set around 1277.34 and the SL around 1270.00, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1276.34 - 1278.34, TP may be set around 1281.00 and SL around 1272.00, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1276.34 - 1278.34 is touched, but the resistance 1276.34 cannot be broken, the TP may be set around 1272.96 and the SL around 1279.34, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1271.00 - 1273.00, TP may be set around 1269.00 and SL around 1277.34, or up to the risk appetite.       

Pivot Points Jan 4, 2024 07:43AM GMT