Soybeans Firm While Corn is on the Retreat
Aug 07, 2009
The beans were firm today while the corn continues to retreat. We find the bean strength interesting while crop conditions still seems to be more of a concern right now. The crop is behind and "will it catch-up?" seems to be the bull’s big question. I have to suggest the weak dollar and continued strong export buying is the strength behind the market rally.
This leads to the major question I have as an advisor to producers: Should they be selling the beans off the combine? I went back and looked at the historical numbers for some patterns to guide me. If you look strictly at the last 8 years, soybeans rallied 6 out of the last 8 years. If you base your strategy on this recent history it would suggest the odds are good that bean storage would pay.
If however, you look over a much longer history, say from 1970 to present, the odds drop to only 40% of the time. So the question is, have things changed? The answer is yes in that China is now a much bigger player but also South America is a much bigger producer. On balance I have to say the rules of supply and demand are still valid. The best cure for high prices is high prices. I have to suggest 2008 and 2009 have to be considered high priced years.
In the end, will the increase in bean acres and average crop along with increased acres in South America be greater than the potential demand from China in a global economic building time perio? It’s tough to know what China is going to do but the pattern seems to be they want to stimulate domestic production and not overheat the market. The current $10 cash bid being offered for fall delivery would be a solid price to take for your inventory. If you want to speculate on a rally due to some type of weather event down in South America why not do it on paper where you know your risk.
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