Current Marketing Thoughts
By: Kevin Van Trump
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
Not Giving Up On Soybeans...Just Taking A Little Break
May 17, 2011
As most of you have seen, I have been scaling back my soybean ratings for the past several weeks. If you aren't signed up for the report, you can click the link and receive the free trial so you can catch up on where I am at with this. Since mid-February prices have fallen from the $14.74 high back down closer to the $13 dollar level. Am I bearish longer-term? Certainly not, but as my sources had indicated supplies were drastically backing up at the ports and the Chinese government was starting to subsidize the processors with below market price beans, along with selling cooking oil below import values to hold food inflation down. With China being the driving force behind global soybean demand there are really very few bullish cards left in the deck right now. Especially now that the South American crop appears to be safe and larger than originally anticipated. The bad part is this pattern could certainly continue for several more weeks and or even several more months with demand for the South American crop backing up and possibly pressuring US beans well past harvest. Fear in the trade continues to mount regarding Chinese bean cancellations and thoughts that Chinese demand may continue to slow. There are also several analyst now predicting US producers will have no choice but to plant more bean acres than originally anticipated. With bearish news mounting, you have to believe beans may continue to fall under pressure, at least until China starts to replenish their "reserves". When this happens demand will once again escalate and could potentially push exports to new all-time highs. Throw in some type of possible production glitch and you have the recipe for skyrocketing prices. When this will occur seems to be the magic question. You have to believe as prices fall and eventually make it more feasible for them to import, they’ll begin to consider refilling their strategic reserves. Remember, they were able to hold down domestic prices by throwing their state owned soybean reserves on the market at much cheaper prices than anyone could import them for, eventually they have to restock. Knowing this, and understanding how they operate I urge you to be careful getting bearish soybeans longer-term. Look for beans to have some nice potential down the road, just not right now. There are a few "bullish" cards in the deck right now that you should keep your eye on, but not many. One pertains to some recent rumors floating around that "quality" issues in the South American bean crop may force China to cancel more South American bean purchases and look for more high quality US beans. Another thought is that recent forecast are now calling for later than normal dry hot weather which could adversely affect soybean yields. One more is the fact the Chinese government has made a calculated decision to plant fewer soybean acres this year. One has to believe few acres planted by the Chinese farmers means more beans will be needed in order to replenish domestic supplies. I continue to like being aggressive "cash" sellers above the $13.00 level (simply too good of a price to let slip by), choosing rather to re-own on any substantial break of $1 or $2. I just believe China has no choice but to step back in on a break to $11 or $12. Trust me, they understand the need to replenish their reserves in a big bad way if they are to have any hopes of battling the next round of inflationary food prices. I think we are still a ways off, but as bean prices continue to drift lower be on the lookout for China to crank back up the bean buying bonanza. It may not occur for some time, but you have to believe it eventually comes back around.
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