• The noncommercial side (investors, funds, etc.) sets the trend (price direction over time) of any market, the reason why Newsom's Rule #1 reminds us: Don't get crossways with the trend. 

• However, as Rule #6 reminds us: Fundamentals win in the end, so we have to understand what the commercial side is telling us about REAL market fundamentals. 

• The soybean market has become an interesting mix with the recent move by noncommercial traders to a net-long futures position. 

You likely recall my Market Rule #1 says: Don’t get crossways with the trend. Why? Generally speaking, the noncommercial side of any market, particularly in the commodities complex, tends to set the price direction over time. This has been a point of contention between mean and nearly everyone else in the industry, but I don’t mind if they choose to be wrong. Before everyone gets their knickers in a twist, keep in mind Rule #6 (out of 7) tells us: Fundamentals win in the end. Eventually, then, the noncommercial side will move to get back in line with what the real fundamental reads^[i] are in a market. All this came to mind following the delayed release of the latest CFTC Commitments of Traders report numbers (legacy, futures only) and seeing the noncommercial side had switched to a net-long futures position in the soybean market. 

And not by just a little. 

The latest Commitments of Traders report showed noncommercial traders held a net-long futures position of 50,161 contracts, a switch of 67,009 contracts as of Tuesday, April 15.

• This included an increase in long futures of 20,538 contracts
• And a decrease in short futures of 46,471 contracts
• As I often add, the fact the change was driven more by short-covering is not as bullish as if it had been driven by new buying.

A couple points about previous weeks:

• Tuesday, April 8: July soybeans (ZSN25) closed at $10.04, down 45.25 cents from the previous Tuesday
• Tuesday, April 15: The July issue closed at $10.4650, up 42.5 cents for the week
  • but still showing a 2-week loss of 2.75 cents
• Tuesday, April 22: July closed at $10.46, down 0.5 cent for the week
  • Setting the stage for what should be an interesting next set of weekly numbers

As for total open interest, the CME was showing the soybean market with:

• April 8  = 868,685 contracts
  • an increase of 14,724
• April 15 = 815,871 contracts
  • a decrease of 52,814 contracts
• April 22 = 813,225 contracts
  • a decrease of 2,646 contracts

In a nutshell: Total open interest in soybeans is showing a pattern of decreasing while the market rallies and increasing as the market sells off. Historically, this has been viewed as a bearish technical indicator. Can we believe what we see in traditional technical indicators? That remains a debatable point. 

But what about fundamentals? As I’ve mentioned, the key read on supply and demand, based on the economic Law of Supply and Demand, is a market’s cash price, aka its intrinsic value. In the case of soybeans (and the rest of the Grains sector), that means the markets National Cash Index ($CNSI). From here we can derive the latest available stocks-to-use reading as well as national average basis. 

Regarding the latter, Soybean national average basis continues to firm but remains weak.

• Last Friday’s calculation came in at 54.0 cents under May futures (solid green line)
  • as compared to the previous Friday’s figure of 56.0 cents under May
  • and the previous 5-year low weekly close for last week at 60.5 cents under May (blue line)
    • with the previous 5-year average weekly close for last week at 44.75 cents under
• The calculation versus the first deferred July futures contract (dashed green line) came in at 65.25 cents under
  • as compared to the previous week’s 66.25 cents under
  • and the previous 5-year low weekly close the firsts week of May at 63.0 cents under July

The soybean basis market continues to firm but remains weak compared to the previous 5-year range. The firming is more than what is normally seen this time of year as the market transitions from the May issue to the July futures contract. It more resembles what is seen when basis is strong (red line), an interesting development given the ongoing escalation of the US/China trade war. 

^[i] Real fundamental reads = National Cash Indexes (intrinsic value) or spot-month contract where a reliable cash index is not available, available stocks-to-use (derived by studying the cash index over time and applying the economic Law of Supply and Demand), basis (the difference between the cash index and the futures market), and futures spreads (price differences between futures contracts).