Soybean futures jumped more than 6% to a nearly two-year high on Tuesday after the U.S Department of Agriculture (USDA) lowers its 2016/17 soybean production forecast. The USDA lowered production expectations by 129 million to 3,800 million bushels, due to poor harvest and trend yields on 2015 crops. The latest USDA data dropped U.S. 2015/16 soybean ending stocks to 400 million bushels versus average trade expectations of 426 million. USDA also limited its projected production gains for the 2016/17 South American harvest due to excessive flooding in areas of Argentina. On May 6th the Buenos Aires Grain Exchange claimed a record 1.6 million hectares of soybean planting were lost due to excessive rains. As uncertainty builds around the global supply of soybeans, China’s demand continues to strengthen. With China consumption of total world soybean supply projected at 63.9% and growing, overall soybean demand for U.S supplies is expected to remain strong. With falling supply and growing demand, recent events are providing strong fundamentals for a bull market.
Oil rebounded sharply from its previous day’s losses, triggered by extending concerns over instability of Saudi Arabia’s oil policy after the change of Energy Minister. The price reversal is partially supported by the $43/barrel price level from previous price movement. A change of Saudi Arabia Oil Minister combined with oil production outages in some regions have attributed to the price recovery. Despite concerns over Canada wildfires and their impact on oil production subsiding, a new disruption in Nigeria amid a series of attacks on its oil infrastructure has pushed oil output close to a 22-year low in Africa’s largest oil producer, imposing bullish pressure to prices. The rally on oil was capped and sent back to $44.5/barrel by API data showing a build of 3.4 mln barrels and the potential increase of oil production in Saudi Arabia. We are expecting to see oil price to range bound between $42-$47 interval recently before the market can see a clear oil policy from Saudi Arabia.
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