Can We See a Front End Rally in Soy?
Nov 19, 2013
Soybean bears continue to question how prices in the deferred contracts can rally in light of such large South American plantings. Most are pointing to the fact Brazil already has close to 70-75% of their soybean crop in the ground (Mato Grosso almost 100% complete), and is running slightly ahead of schedule. With weather looking next to ideal the argument is being made that Brazilian exports could be hitting the market by late-January. In fact there are already reports of China booking beans out of Brazil for early-Feb at a $0.30 to $0.40 cent discount to the US. This will obviously help squelch US demand and strong export sales for the US may end sooner than once anticipated. Keep in mind the trade is also not ruling out the fact Brazil could produce 90 million metric tons in 2014 and Argentina closer to 58 million metric tons, basically an extra 15-16 million metric tons of soybeans could be coming out of South America this coming year. Understand thats more than the entire state of either Illinois or Iowa produces in a perfect year... hence this could throw a very large number of EXTRA soybean bushels into the marketplace. Lets not forget there is speculation US producers may also plant an additional 6-8 million soybean acres in comparison to this past year. Point is producers have to be fearful of longer-term price depreciation. Continue to look for any type of rallies in the deferred 2014 or 2015 contracts as your opportunity to reduce more downside exposure.
Nearby, we still need to market another 20% of our soybean production form this year, and will remain patient with cash-sale targets still in place above $13.00. Moral of the story, don't yet give up on the possibility of another front-end rally in the soy market. Be extremely careful however thinking this strength will eventually roll to the backend. From my perspective the risk clearly remains in the deferred soybean contracts...NOT the nearby. Click here for the rest of my market comments.....