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China Bid Firm for Beans, Will the Weaker USD Entice Exports?


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Strategy of the Day 3.2.2020

China Bid for US Soybeans Remains Firm Will the US Dollar Entice Exports?

I have been tracking the COFCO-Growmark, Cahokia Il facilities cash grain bids since the start of this year, with the idea that this could be a signal of China re-booting their US purchasing program of soybeans. As of Friday, St. Louis Mississippi river bids were at their highest for 2020, with the (China owned) COFCO partnered facility bidding to +31 cents for March soybeans, up 1 cent that day. Most notably this is over an 11-cent basis improvement (since early February), and all during a period where futures prices have been falling. With Friday ending the life of the March contract (first notice) and taking into account the -10.50 cent roll to May on the board; the current spot price bid of +20 cents over (for now May beans), remains firm at the Chinese partnered facility.

Although the continued basis improvement is a good sign, it has not been enough to entice the market to rally price (Friday and today excluded). We have seen that Chinese buyers are trying to fly under the radar with the purchasing, with flash sales below the 100k reporting thresholds (which have translated to poor export numbers as well). The slow and steady increases in the cash bid is also sneaking its way up, and in my opinion by the time we see the first major exports, prices will have already started to run away (lets hope)!

The last remaining piece of the puzzle, and the biggest reason (in my opinion) why China has not ramped up purchases (and why grain prices have not improved this last year): the US Dollar (was) at decade highs. Over the last year, we have witnessed the king dollar dominate the global currency baskets, as a flight to quality (due to low Eurozone interest rates, Brexit fears, and large Oil exports, and concerns of a slowdown in China) resulted in the USD becoming the strongest currency for 2019. Over the last week, however, we have begun to witness a rather sharp reversal in this trend, and the USD may become our Ace in the hole (a weaker dollar that hopefully translates into exports). The US Dollar Index March contract is currently trading at 97.335, down .76% today, and well off its multi-year high of 99.810 (2/20/2020). The dollar is now at its lowest levels since mid-January and looking like it is trying to break back down into its trading range for 2019 (reversing its breakout).

May soybean futures settled today at 901, to finish positively up 8.25 cents, and are back to their highest levels since 2/21/2020. The next major area of resistance now will be the 910.25 highs of February, a level that capped the May soybeans in a tight trading range at lows. Above this threshold would constitute higher-high and higher-low on the monthly candles and may be the confirmation needed for the technical traders to hop into the rally. Remember, for over a year now the 860-960 (roughly) range in soybeans has been a strong price band keeping the trade locked in. I am looking for confirmation of a reversal before a period of price discovery could take the market back towards the high end of this range. If price breaks down below the lows of February (878.25) this breaks my hopes for a reversal. The lows are holding until they are not, and in my opinion the bulls have possession for a test of resistance at 910.25 (and hopefully beyond).

Dan can be reached at (312)277-0110, dhussey@zaner.com, or on twitter @DanielHusseyJr with any question or further comments. You can click here to get access to the Zaner Ag Hedge daily newsletter to receive his emailed commentary daily!

Get all of Dans commentary, as well as the entire Zaner Ag Hedge teams thoughts:

http://www.zaner.com/landing/ag_hedge_newsletter.asp?AP=DHUSSEY

US Dollar Index Continuous Daily Contract



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About the author


Dan began his career in 2006 as an arbitrage and clearing clerk for Spyglass Options in the Eurodollar futures options pit on the floor of the Chicago Mercantile Exchange. Taking his employing brokers advice, Dan soon left the floor to pursue a career “behind the screens upstairs”, as there was an inherent lack of opportunity for market making in open outcry pits. After graduating from the University of Notre Dame in 2009 (and for the subsequent 10 years), Dan leveraged his IT background in networking and computer programing to begin developing computerized trading algorithms and trading systems for multiple private equity firms and his own account. He eventually found his specialization in trading carry trade dynamics in currency and interest rate futures; while simultaneously building his experience in trading both inter-market and intra-market spreads. His trading experience later expanded to include most commodity spreads, with an emphasis on carry trade economics in agricultural commodities. In 2016 Dan decided to take his career full circle by becoming a series 3 and 34 licensed broker; and expanded his outreach to the agriculture production community. In 2018, he joined Zaner Financial Services Ag Hedge division, bringing his knowledge and expertise of carry trade economics and continues expanding exposure to spread markets. Dan can be reached at (312)277-0110 by phone, @DanielHusseyJr on twitter, @DanSOTD on facebook, and emailed at dhussey@zaner.com.
 
 
Contributing author since 2/15/2019 

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