SUE MARTIN COLUMN: Soybeans rallyThe soybean market started the week with a Chinese buying delegation visiting the Chicago Board of Trade May 14 and signing a new trade agreement for 5.76 million metric tons of U.S. soybeans worth an estimated $2.07 billion.
By: Sue Martin,
The soybean market started the week with a Chinese buying delegation visiting the Chicago Board of Trade May 14 and signing a new trade agreement for 5.76 million metric tons of U.S. soybeans worth an estimated $2.07 billion. Before the week was done, USDA announced a sale of 2.092 million metric tons for 2007 to '08.
Argentina continues to deal with wet harvest conditions that are slowing not only the pace of harvest, but harvesting yields considerably lower than earlier-harvested soybeans. The strength of the Brazilian real and the weakness of the dollar have South American farmers unhedged and fearful to sell soybeans at the current values unless the dollar rallies and the price moves higher. If the present environment were to continue, Brazilian farmers most likely will opt out of planting in October as many hectares of soybeans as the last season.
China's soybean acreage this year is forecast to fall 3 percent. A recent forecast from Agroconsult is for the real-U.S. dollar exchange to go to 1,70. With losses mounting, it is thought that the number of farmers will decline again next year in Mato Grasso, Brazil's largest soy-producing state. Farmers there rarely use the board to hedge risks and face volatile soy futures on the CBOT and currency risks. This could lead to foreign buying of U.S. soybeans when they would be securing South American soybeans. A support under the soybeans.
Soybeans rallied better than corn. The corn market is loaded with longs, and the soybean market was filled with doubting bears. USDA surprised the trade with the 2007 to '08 carry of
320 million bushels and in corn, a 10 million-bushel increase in the new carry after planting expectations of a record 90.5 million acres and harvesting close to the 83 million acres. Next year, corn will put up a big fight for acres against soybeans. Soybeans tend to put corrective lows in a year like this one in April. When there are contract highs in February on the July contract, new highs tend to be seen after a correction into April.
I look for new highs. Soybean and soymeal imports are on the uptrend because of poultry production recovering from Avian flu in Africa. Mexican crushers have shifted from rapeseed and canola because of price and have gone to soybean imports. Soy and palm account for nearly 50 percent of all oilseeds in world demand. Malaysia and Indonesia are expanding bioenergy.
New crop soybeans will need to make new highs on a cyclical standpoint to encourage expanded U.S. soybean acres in 2008 after a drastic cut in 2007. Traders will watch weather developments after meteorologist Tom Skilling was quoted by the Chicago Tribune as saying a dry early May in Chicago tended to fortell a dry summer nine out of 11 years. Temperatures are similar to the spring of 1988 and, in years when the El Nino switches during the winter to a La Nina by August, soybean yields were below the previous year's yields with significant droughts in 1988, 1995 and 2003. Less yield potential on fewer planted acres should spell a buoyant market.
I suspect the farmer is holding a fair amount of cash soybeans on the farm. Be prepared to sell that cash on the coming rally. July soybeans are 30 cents from the highs. Look for new contract highs in June. The commercial index funds were holding 25 percent of the open interest in soybeans. Will this position grow?
While this year's corn planting pace is slower than last year, farmers have done a good job planting more acres for the percentage using USDA's 90.5 million acres of planting intentions. I have yet to hear of farmers switching from corn to soybeans. There may be prevent plant in South Dakota and milo planted in Kansas, but I am hearing of pivots of wheat torn up in Nebraska and planted to corn under wet conditions. I think the corn lows are in, but this market may not swing out of here too fast but become sideways to higher on as focus moves from planting weather to demand. Bull spreads seemed to kick in.