Chicago, 28 April 2010

The soybean market is vulnerable to a steep setback now that US plantings of the crop are gearing up, export competition is intensifying from South America and upbeat chart patterns have deteriorated.

July soybean prices eased 16 cents a bushel Tuesday in line with a general decline in commodities markets spurred by worries about the debt downgrades of Portugal and Greece and as commodities trading giant Goldman Sachs endured a wrist slapping on Capitol Hill for its involvement in the US financial crisis.

However, now that its recent stretch of strength has been broken, the soybean market may be primed for a more extended bout of weakness given its deteriorating appeal from both a technical and fundamental perspective.

Chart Pattern Hints at Weakness Ahead

As can be seen in the below chart, November soybean futures endured their first notable setback in roughly a month Tuesday and settled below a trendline that has underscored trade since late March. Given that both the relative strength index and slow stochastics on this chart suggest this market has recently approached overbought status, this technical breakdown may trigger followthrough liquidation from chart tracking traders in the sessions ahead.

Bearish Fundamental Emerge

Although recently supported by robust demand from China, the US soybean market looks set to face an increasingly bearish domestic supply environment in the months ahead as the US planting season picks up pace.

The USDA does not officially track national planting progress of the soybean market until next week, but there are already clear signs via weekly reports from the USDA state offices that US growers have been actively seeding soybeans at a rate similar to the record-setting pace that has been seen in the corn market in recent weeks. The below table illustrates that growers in the top soybean producing states are already ahead of the usual pace at this point in the year in terms of plantings, while extended weather forecasts suggest conditions should allow for continued widespread fieldwork over the coming weeks.

Given that new crop soybean futures are roughly 40-50 cents a bushel above where they were at this point in 2009, clearly the incentive is there for US growers to capitalize on the demand for beans.

Increased competition from South American growers is also set to pick up in the weeks ahead as harvest of the record crops produced in Brazil and Argentina gets into full swing. Heavy rains in Brazil and an Argentine/Chinese trade spat over soyoil have slowed the flow of soybeans out of those countries lately, but it is safe to assume that the tonnages of soybeans leaving South America will increase as fresh supplies emerge from the fields to pressure local prices in that region.

The below chart shows how US exports of soybean have been resilient of late during the somewhat stunted export shipment pace out of South America, but we are fast approaching the traditional period when South American shipments take ownership of the global export stage while American growers gear up for the planting season ahead.

Overall, while the soybean market has impressively defied expectations of price weakness to date, the recent setback in values just as U.S. growers begin planting in earnest may be a sign that a protracted price retreat may now be in the works.

Ends --

By Gavin Maguire, Reuters market analyst - for Commodities Now.

The views expressed are his own. To get his real-time views on the market join the Reuters Global Ags Forum chatroom.