Sue Martin column: Correction for soy market?
Soybeans met with resistance July 13 at 0.618 retracement of cash soybeans basis Decatur, Ill., from the spring high of 2004 to the fall low of 2004. Furthermore, for the May, July and the March contracts, year in and year out, the huge gaps I ha...
Soybeans met with resistance July 13 at 0.618 retracement of cash soybeans basis Decatur, Ill., from the spring high of 2004 to the fall low of 2004. Furthermore, for the May, July and the March contracts, year in and year out, the huge gaps I have discussed during the past two years were filled in full. It's time for a correction with the change in trend timing July 16 and 17, however, prices testing the 40- and 50-day moving averages along with the trendline from the April lows has put this market into stabilization.
Brazil has concerns about planting prospects for soybeans. It has been dry for 15 days into July 18 in Mato Grosso, and rainfall cumulative for the past six weeks in Mato Grosso do Sul only has been only 20 percent of normal. Moisture deficits are being felt, and if the pattern continues, the market will take notice. Moisture deficits, a strong real and weak dollar, rising input costs and a decline in the price of soybeans, should it sustain, are reasons for soybean production not to increase in Brazil. Brazil's exports grew this past April-June quarter for poultry by 31 percent and 26 percent for red meat from last year's pace. With demand for meat exports, prices are on the rise and expansion is expected to lead to more need for protein.
China has been in the world market for more pork product imports with prices domestically up more than 25 percent. There, too, expansion in poultry, after the bout with bird flu is past, and pork disease tightening supplies among a growing demand with a good economy is leading to more expansion. China has a big appetite for protein. The U.S. import projection for China is 34.5 million metric tons vs. 30.5 million metric tons this year. Resistance in November soybeans is at a 38 percent retracement of 891.5 and the $9 level. The downside support of 850.6 equals a 50 percent retracement and so 840-850 looks to be supportive. Range bound for now? Weather will be key as we enter August. The rains of the past week did not take care of all, and the areas missed are where more soybeans are planted.
According to Brazil's agriculture minister, companies exporting ethanol will be required to obtain a new environmental and industrial standards certificate in 2008. The government is trying to be one step ahead of concerns from Europeon nations that could ban the Brazilian imports of ethanol citing possible labor violations and environmental laws. With the growth of ethanol production in Brazil made from sugar cane as a feedstock, stories have surfaced on slave labor conditions and aggressive clearing of the tropical forests to expand production. Strategie Grains reduced its production estimate for the EU-27 corn to 54.7 million metric tons from the previous estimate of 56.3 million metric tons because of drought. September corn futures met the July expiration of 318 and then some. December corn futures are on a down trendline from the gap up lows of January and every low made thereafter. Support comes in on the December corn at 325 area, and more important, the magical $3-298. Corn will fight for acres this fall with wheat. In fact, with $6, look for September CRP released acres to go to wheat and perhaps some pasture. Land that was planted at corn's expense in the fall most likely will go back to wheat. Acres will grow again around the world in wheat. Argentina's ag secretariat reported that 73 percent of the wheat crop was planted with farmers expected to plant 5.55 million hectares, up 50,000 hectares from last month's estimate. With soft red wheat in the bin, focus should shift to export demand. Futures have been trading to 11-year highs, and end users will have to decide if they are willing to chase the market to new highs or buy on breaks with the dollar so weak and pace themselves. World stocks are tight, and one would think that rationing might take place down the road. However, you go from tight supplies to big supplies. Once the acres are planted this fall, world buyers will go hand to mouth unless the dollar shows confidence that a bottom is in.