January 24, 2017 / 2:24 AM / 3 years ago

Funds pile in to soy complex over Argentine rains: Braun

CHICAGO (Reuters) - Last week was a great one for both soybeans and soybean meal as heavy rains in Argentina, the world’s top exporter of soymeal livestock feed, caused many market participants to worry that the country’s soybean harvest would shrink.

Soybean plants are harvested at a field in the city of Chacabuco, April 24, 2013. Food demand is rising and the South American country is a natural grains exporter. REUTERS/Enrique Marcarian

Traders wasted no time capitalizing on the potential supply woes. According to the CME Group, Chicago soybean futures posted the largest-ever five-day increase in cumulative open interest in the sessions from Jan. 12 to Jan. 19.

Speculative market participants significantly ramped up their bullish stance on soybean and soybean meal futures over the same time frame.

In the week ending Jan. 17, money managers extended their net long position in soy complex futures and options by almost 69,000 contracts – the largest weekly gain since mid-March – according to the U.S. Commodity Futures Trading Commission (reut.rs/2jUbeYI).

Soybeans accounted for half of these positions, but soybean meal was the biggest winner – more than doubling its net long position from the previous week to 49,496 contracts. This is the funds’ most bullish weekly surge in meal positioning in at least a decade, and perhaps of all time.

Over the past few months, soybean meal futures have been on the sidelines to some extent as their counterparts have enjoyed more success. Soybean oil futures were the best-performing product among the soy complex toward the end of last year, but the oil has not necessarily participated in the latest rally (reut.rs/2jielIW).

Soybean meal rallied 13 percent in the week ending Jan. 18 while soybeans added 7 percent. But a drier Argentine weather forecast has begun to puncture enthusiasm for the soy complex, and soybean futures were working on their third straight day of losses late in the session on Monday.

The market was apparently not fazed by Thursday’s production cut from Argentina’s Buenos Aires grain exchange, which shaved 1.5 million tonnes off its 2016/17 domestic soybean crop estimate to 52.9 million tonnes.

Although initial outlooks may not be fresh in the minds of most, the lowered harvest projection was indeed no reason to panic since the new 52.9 million-tonne target is right in the ballpark of both the Rosario and Buenos Aires grain exchanges’ original predictions back in October and November – which both received a relatively short-lived market reaction.

According to the latest forecast model runs, Argentina’s core region is still expected to finish the month of January under drier conditions. Temperatures will still be warmer than average – but not as high as models late last week were predicting.

However, forecast models have begun to bake wetter weather back in to the mix for Argentina’s soybean belt at the start of February. As of midday Monday, average daily rainfall totals for the first week in February were in the quarter- to half-inch range (6-13 mm) (reut.rs/2jieBri).

But given that February is more than a week away, the wetter pattern and its longevity is certainly no guarantee, so the market will be glued to the development of this forecast in the coming days.

Editing by Matthew Lewis

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