Joe Victor is a Business Development Specialist with Minneapolis Grain Exchange, Inc., where he monitors cash grain activity and cash grain opportunities. He provides marketing advice through this blog.
Will China Hang?
Apr 14, 2009
Allendale Inc realizes much of the reason for the rally for U.S. old crop soybean futures is the combination of declining 2009 Argentina soybean production as well as the country’s political problems and stronger than average soybean purchases by China of US soybeans.
As you are able to view present marketing year net sales of US soybeans to
China are running well above its five year average. Most specifically as of the most recent export sales activity report via USDA, China purchases of US soybeans for the 2008/09 market year are the largest of the five main world buyers of US soybeans at 38% greater
than year earlier levels. The remaining four largest buyers are all showing smaller purchases than year earlier levels with the EU-25 down 37%, Mexico down 28%, Taiwan down 9% and Japan down 8%.
Most importantly of the total accumulated 2008/09 export sales of US soybeans of 29.098 million tonnes, China accounts for 16.701 million tonnes or 57.4%! The question is will China continue to hang with the US as a supplier of old crop soybeans or direct more of its attention to South America’s new crop harvest?
Allendale Inc is fully aware as of 4/14/09, Rotterdam CIF prices indicate a $2.25 per tonne advantage for Argentina soybeans vs US supplies and $3/tonne discount to Brazil supplies. Allendale Inc suggest if the Argentina discount to US soybeans increases to a level of $8 or more, China may likely switch preferences to Argentina and continue its purchases of Brazil soybeans.
An additional advanced warning of China cooling to US soybeans may be discovered in the May/Nov soybean spread
. The recent 40 cent rally in the bull spread may soon discover technical based resistance at $1.10 premium the May futures before old crop futures enter first notice day on 4/30/09. Allendale strongly advises to use a trailing stop on its present bull spread position. A breech of 70 cents premium May vs Nov may be a precursor to the announcement of China increasing South America soybean purchases and there is always may the threat of China canceling previous US purchases or the possibility of China implementing measures to increase the value of its own domestic supply and reduce the imported value as China farmers begin their 2009 spring season planting campaign. The question remains, how much longer could China hang with US suppliers?
Allendale Inc would appreciate your thoughts and ideas regarding the potential for additional US soybean purchases from China. ….Joe Victor
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Commodity trading may not be suitable for recipients of this publication. This is not a solicitation of the purchase or sale of any commodities. Those acting on this information are responsible for their own actions. Any republication, or other use of this information and thoughts expressed herein without the written permission of Allendale, Inc., is strictly prohibited. Allendale Inc. c2009