CHICAGO (Reuters) - Speculators are more optimistic about the Chicago soy complex for this time of year than they have been since the commodity rally of 2007, but the soybean-driven position does not completely jibe with supply and demand fundamentals.
In the week ending Dec. 13, hedge funds and other money managers held on to net long positions in futures and options for CBOT soybeans, soybean oil, and soybean meal, according to the Commodity Futures Trading Commission.
Although the bullish positions were trimmed slightly from the week prior across all three commodities, the combined net long position of 240,682 contracts is second only to 2007 for mid-December (reut.rs/2hjLwby).
Soybeans account for half of this position, while soybean oil makes up the majority of the other half and sits at a record-long end of year position - 101,367 contracts in the week ending Dec. 13 (reut.rs/2hjL8tR).
The soybean oil position makes sense. The U.S. Department of Agriculture projects that world soyoil stocks-to-use, a key measure of supply and demand, will fall to 5.2 percent in 2016/17. This would be the narrowest margin since 1974/75.
It also helps that futures prices for soybean oil’s key competitor, palm oil, are up 30 percent over the year-ago value – at the second-highest level in at least a decade.
Expectations for soybean meal supply and demand also appear to be reflected in recent speculative attitudes.
World stocks-to-use for soybean meal in the current marketing year is forecast at 3.7 percent, which would be the lowest ratio since 2009/10. As such, funds’ modest net long position of 18,565 futures and options contracts is very close to the 10-year mean for mid-December (tmsnrt.rs/2hjJTuC).
When it comes to the soybean position, which is roughly even with that of December 2012 though less bullish than 2010 or 2013, not everything is as straightforward.
One of the most glaring aspects is the large difference in managed money’s positioning between this year (net long 120,750 contracts) and last year (net short 29,519 contracts) (reut.rs/2hjR4TN).
The disparity exists despite the fact that 2016/17 global soybean supply and demand looks strikingly similar to last December’s projections for 2015/16 – identical carryout of 83 million tonnes and stocks-to-use right around 18 percent.
However, comparing funds’ historical mid-December net soybean position against December projections of world stocks-to-use actually suggests that neither 2016 nor 2015 are outliers given the ratio's narrow prediction range between 17 and 19 percent (reut.rs/2hjQntr).
But when focusing in on the same set of data for the United States – the largest producer and second-largest exporter of soybeans – speculators appear to be betting on soybeans as if the domestic supply versus demand ratio were half of what it really is.
In past Decembers in which funds held net long soybean positions of more than 100,000 contracts, U.S. stocks-to-use for the respective marketing years were forecasted between 4 and 8 percent, much less than the 12 percent currently slated for 2016/17 (reut.rs/2hjKAUA).
Given the fundamental similarities to last year, it is almost as if everything in the 2017 soybean market has to play out exactly as in 2016 to sustain or even raise soybean prices. The biggest pressure would be on U.S. soybean demand, which was the main factor in whittling the 2015/16 U.S. stocks-to-use ratio of 12 percent projected last December to a final 5 percent.
In December 2015, it turned out that USDA was actually underestimating final U.S. soybean exports by about 13 percent. Applying this to the current 2016/17 figure of 2.05 billion bushels (55.8 million tonnes), the United States would have to instead ship 2.3 billion bushels (63 million tonnes) of soybeans by the end of August to produce the same effect.
Where would we find an extra 10 million tonnes of demand in just one year, especially if South America pulls off a monstrous soybean harvest?
Perhaps USDA has gotten much more aggressive early on with its 2016/17 U.S. export target than it has in past years.
But for now, the next step will be to finalize 2016/17 U.S. soybean supply, which for the most part will be settled by USDA’s annual crop production report expected on Jan. 12.
Editing by Matthew Lewis