Short Covering Rally Continues to Support Soybean Prices


Jan. 7 2016, Updated 12:30 p.m. ET

Soybean prices rise

Soybean futures contract of CBOT (Chicago Board of Trade) for January expiry advanced by 0.92% and settled at $8.8 per bushel on January 6, 2016. Soybean futures prices rose due to short covering rally. Following the price movement on CBOT, the Teucrium Soybean Fund (SOYB) rose by 0.26% on January 6, 2016.

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Soybean prices were trading in the range of 860–885 cents per bushel since November 15, 2015. The speculators wanted to break the consolidation trading pattern and supported short covering in soybean futures contracts on January 6, 2016. With the help of technical buying in soybeans, prices rose on the second consecutive day on January 6.

Weather conditions in South American regions are anticipated to be positive for the major soybean producing areas. Conditions in the key soybean-producing state of Mato Grosso have been improving in the dry pockets with favorable precipitations. Southern regions in Brazil also received support from the dry weather conditions. The output sentiments have strengthened amid the favorable weather conditions.

For the marketing year 2015–2016, Informa Economics’ projected production is 101.4 million metric tons from Brazil and 58.5 million metric tons from Argentina. Against the unfavorable weather conditions of about ten weeks in Brazil, soybean output hasn’t been reduced. This would negatively affect the futures prices and raise competition in the export market.

Allendale Inc. released its January 2016 World Agriculture Supply and Demand Estimation report projections on January 6, 2016. It increased the yield slightly by 48.42 bushels per acre for the marketing year 2015–2016. That’s higher than the USDA’s[1. U.S. Department of Agriculture] WASDE[2. World Agricultural Supply and Demand Estimates] yield reports for December 2015 and all of 2014 that respectively came at 48.30 and 47.55 bushels per acre. Higher soybean output expectations would drag futures prices amid higher world inventories.

Concerned fertilizer business

Supporting the farm collections, the rise in soybean prices would support fertilizer companies by supporting sales. On the other hand, CF Industries Holding (CF), Enterprise Products Partners (EPD), Martin Midstream Partners (MMLP), and Chemical & Mining Co. of Chile (SQM) fell by 8.6%, 4.4%, 8.3%, and 1.9%, respectively, on January 6, 2016. Also, the Material Select Sector SPDR ETF (XLB) fell by 2.6% on January 6, 2016.


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