Current Marketing Thoughts
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
Why Soybeans Are Playing Quarterback Right Now
Oct 17, 2012
Soybean "demand" continues to be an extremely powerful story, but in and of itself it simply does not have enough strength right now to lead us higher either. Yes, I believe the the USDA is underestimating almost every aspect of the soy demand balance sheet. I believe exports are going to be larger than anticipated, not only on stronger Asian interest but also on stronger European and global interest as well. I also believe the domestic crush number is understated as well. The recent jump from 1.5 billion to 1.54 billion is simply not enough, keep in mind last year the domestic crush was estimated at 1.703 billion. If ethanol production continues to slip (and DDGS production falls even lower), you have to believe the livestock industries demand for meal is NOT going to subside any time soon. In my opinion, to say soy "demand" is a bullish story is an understatement. The problem once again is that we can not put together both a bullish supply and bullish demand story. The "demand story is strong, but unfortunately we continue to have a bearish tone to the "supply" side of the equation, as the bears believe the US soybean yields are closer to 40 bushels per acre and total production maybe closer to 3.0 billion bushels. Let's also keep in mind, there is talk that total South American soybean production could soon exceed 150MMTs.
I hate to be the bearer of bad news, but to drive prices up this steep of a mountain we need "TWO" extremely strong and healthy legs. Right now we have corn and wheat with an injured right leg (demand), and soybeans with an injured left leg (supply). I am afraid with the competition so stiff and the environment so rough, playing on a banged up wheel is simply not going to get the job done. From my perspective, the soybean market has to play the position of Quarterback on our team, there are no other real alternatives right now. Beans seem to be the only one on the field that can run, throw and be a scoring threat at any given moment. Unfortunately for soybeans there are a couple of things that need to happen before we see beans get back to being our leader.
As a Soybean Bull You Are Essentially Betting On Two Select Scenarios:
- Weather issues in South America - Any type of weather related hiccups or production setbacks in South America will undoubtedly provoke a huge move to the upside in soybeans. This will obviously pull both corn and wheat higher and will be our quickest road to higher prices. All that has to happen is for forecasts to start showing more reasons for doubt. We do not actually need a weather crisis, we just need the market to believe there is true potential for a weather crisis and prices will push higher.
- Logistical issues in South America - Even "IF" the South American weather cooperates, there is still the concern and issues involved with getting the beans to the ports and out of the country in a timely enough fashion to satisfy the world's needs. This bet is a longer-term play and one that might not come to fruition until the 2nd quarter of 2013 or at a time when US suppliers are more fearful about actually running out of soybean supplies. Once we reach this stage of the game, I would suspect the market could become extremely nervous and prices could push higher reflecting the uncertainty.
As for today, the bulls continue to wait for some type of additional bullish supply side news from the soybean trade hoping it will lead the Ag markets to higher ground. The problem is as each day passes more and more traders are loosing interest with a soy story that has been unfolding for a larger part of 2012. Understand what I am saying here, if your a producer who is still holding unpriced or unhedged bushels you are essential betting on some type of South American weather problem. If the South American weather doesn't become an issue, you still have some hope though simply because the trade will be uncertain whether or not South America will be able to supply the world with the large number of soybeans needed in order to fulfill demand. If neither of these cards are turned over, then your hand is essential dead. Meaning do not not pass "go," do not collect $200, thats basically game, set, match for this bull market. Prices will continue to drift lower and we will continue to make lower highs and lower lows until we see an entirely new story and set of circumstances emerge. The question though now becomes...
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