Soybean Markets Just Had A Historic Week

At a Glance

  • Weather in Argentina, fund activity combine for a frenzied week.

Soybeans markets had a historic week in April, twice seeing record daily trading in combined futures and options volume April 19 and 20. That is no small event for a market that is nearly 80 years old.

After several months of sideways to lower trading, prices began an upward climb in early March that lasted nearly two months. The market had previously become technically oversold with funds holding large short positions which they began to unwind into mid-month.

Then, persistent heavy rains in Argentina – a major soybean producer – showed signs of severely limiting the harvest there. As wet weather continued for weeks and funds shifted to long positions, prices rose and trading increased to a frenzied pace April 18-20 as funds began entering the market with long positions. By April 21, prices in the July futures contract had risen .80 on the week, a more than 8 percent increase.


Soybeans July Futures 0416


The combined futures and options volume of 1,035,370 on April 20 was the first time soybeans have traded more than 1 million contracts in a single day. It was a 26 percent increase over the previous record set the day before.  They were two of several trading records set for soybeans markets during the week.


Soybean records 0416


But why did this news of wet weather spur so much more trading than ever before? It is hard to know precisely, but we can’t discount the possibility that fund trading exaggerated what the fundamentals were actually saying.

One possible answer is the severity of the rains in Argentina. They have arrived consistently for several weeks, and saturated the ground to a potential crisis point. The Wall Street Journal reported that the loss of soybean output could cost Argentine farmers up to $2 billion and the Argentine government up to $600 million in lost tax revenue.

One other possibility is the activity in spreads. The price spread between the July and November futures contracts narrowed by as much as 0.35 April 19 and 20, a dramatic change in a short period.  This likely forced losing positions to liquidate, and attracted the attention of many other participants to take new positions in the spread market.


Soybeans July Nov Futures spread


It is not unusual to see high levels of grain and oilseed trading this time of year. As U.S. farmers are planting their crop and South American farmers are harvesting theirs, producers, funds and other participants grapple with the changing supply and dynamics.

Of course, the emotionally charged environment can be short lived. Already by April 22, volumes were high again but soybeans prices saw a dramatic decline with the forecasts of drier weather returning to Argentina, and the selling of long positions taken earlier in the week.


Susan Sutherland is Senior Director of Ags and Alternative Investment Products at CME Group.

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