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Soybean Trade Struggles to Resolve Supply Issue

August 17, 2012
 
 

In what was one of the quietest trading weeks of the year, November soybeans were able to scratch out a $.02 higher close for the week, while corn and wheat finished the week slightly lower.

The week began with a continued hangover from the USDA report a week ago that saw corn values surge to new all-time highs only to close lower for the day. Follow-through weakness on Monday as well as solid rain activity in the first half of the week led to additional profit taking. Some of the best rains of the year fell in some locations this week. It will be debated as to how many bushels have been added to the soybean crop as a result, but the cooler temperatures and rain activity certainly did stabilize the crop and offered some the reason to exit long positions.

The soybean market caught a solid mid-week bid on a strong crush report as well as strengthening basis in many locations. The U.S. Gulf basis spiked on Wednesday as at least one exporter was scrambling for supplies in a depleted pipeline. The bid for near-term delivery of soybeans at the Gulf were bid at $1.60 over the November contract on Wednesday, sparking chatter of immediate demand and firming soybean trade at the Chicago Board of Trade.

Some analysts have begun describing the soybean trade as being in a pennant formation, with the trade bracing for a breakout one way or the other before too long. From a fundamental standpoint, the soybean market has a supply issue to resolve and I suspect will solve that with higher prices over the next few months. Although not ruled out, a sharply higher soybean trade is not necessary next week or the week after. The current choppy price action may in fact be the norm for the next few weeks. However, unless something else develops that can help to ration the current pace of soybean usage relative to supply, then sometime in the next few months it will be solved by sharply higher soybean values. The longer this market waits to solve its rationing issue, the more acute and sharp the rally must be to accomplish the task.

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