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Over the last three weeks, soybean prices have come under sharp pressure from a combination of the Chinese government selling in its domestic vegetable oil market and investment fund liquidation on equity market concerns. However, prices have rebounded the last few days with China resurfacing in the world soy markets, Argentina declaring a force majeure because of a local farmer strike, and the Federal Reserve's recent actions helping to stabilize the U.S. equity markets.

The U.S. Department of Agriculture's (USDA) March 31 planting intentions and quarterly stocks reports will be the market's next big hurdle. With last year's dramatic tightening of U.S. soybean supplies and record prices due to the sharp drop in seedings, soybean plantings are expected to jump significantly to 73.3 million (up 9.67 million acres) this spring. Concerns about the high costs of corn inputs and producer disappointment over yield results from corn-on-corn seedings, particularly in areas of the western Midwest, have prompted country reports of high soybean seed sales late last month. The last month's dramatic drop in the new-crop soybean/corn ratio, to 2.18 from 2.58, could prompt some reversals of producers' plans back toward more corn seedings. But the current cold, wet conditions in the Midwest will determine if much of this talk turns into reality.

If you cannot view the U.S. Soybean Acreage chart, go here.

With strong export demand and solid domestic crushings -- both at record-level paces -- this past winter quarter's usage was 900 million bu. The big unknown for soybeans will be if the residual level, which was unusually low when the December stocks report was released earlier this year, recovers dramatically as it has in the past. If not, it will suggest that last fall's crop might have been underestimated. Given this year's talk of high seed bean sales (the residual has reflected the movement outside of the commercial monitoring system over the years), our 1.33 billion bu. March 1 estimate shouldn't suggest any significant underestimation of the crop.

If you cannot view the U.S. Soybean Supply/Demand chart, go here.

If you cannot view the March 1 U.S. Soybean Stocks chart, go here.

The USDA doesn't update its supply/demand balance sheets utilizing these numbers until April 9 for old-crop and May 9 for the first official 2008/09 forecast. However, if larger stocks or smaller acres are reported, the market normally assumes that these changes will directly impact soybean ending stocks. But recent Chinese buying could prompt slightly higher exports, which could be accommodated by a slight decline in the residual without adjusting last year's crop. With good yield reports continuing from Brazil's harvest and reduced stress in Argentina, the output of each of these South American competitors could rise 1 mmt over the next few months. Producers should hold old-crop sales at 90%, but utilize new-crop rallies in the $13.00-$13.35 area to up coverage to 40%-45%.

If you cannot view the U.S. Census Soybean Exports chart, go here.

If you cannot view the S. American Soybean Production chart, go here.

The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

Jerry Gidel is the president of Midland Research, Inc. and a research trading analyst for RJO Futures. In April 2003, he joined North America Risk Management Services, Inc. (NARMS) as an associate, specializing in the cash and futures grain markets.

With more than 30 years of experience in commodity analysis and brokerage, Jerry focuses on providing risk management services to livestock producers, grain producers, and commercial operations. He formed Midland Research in 1981 as a consulting firm working from the agricultural trading floor at the Chicago Board of Trade.

He has vast experience as a vice president and senior grain analyst at Dean Witter Reynolds, and as a grain market research analyst with several other leading commodity brokerage firms, including Paine Webber, G.H. Miller, LIT.

Get Your Complimentary Technical Analysis Guide from RJO Futures.

Every serious trader uses Technical Analysis to seek an edge in the markets. You can too. Learn to interpret the most common chart patterns for identifying market direction and target prices with this no-cost guide, written by RJO Futures' own trading advisors.

Get Your Technical Analysis Guide Today!