Short covering at the morning open supported a quick rally in soybeans, and the market spent the rest of the day backtracking. However, the market posted modest gains at the close, with November ending above last week’s high. Commodity fund traders were estimated buyers of; 3,000 soybeans, 1,000 soymeal, and 500 soyoil contracts.
While funds have held a net short futures position since early April, they have also maintained a small net long positon in options. The chart shows the CBOE/CBOT soybean options volatility index, which not surprisingly tends to increases through the growing season. However, the index is currently well under both last year and the 5 year average. Traders have been quite comfortable staying bearish soybeans, but based on early producer reports we expect that next week’s initial crop ratings could be well under a year ago.
And while our view is not exactly bullish, we fear that current poor conditions in the Eastern Cornbelt and drought in the Dakotas warrant concern that is not reflected in the market.
ARC awaits short covering rallies for sales. Some long range forecast models maintain the Midwest dryness in July.