Rumors of Chinese Interest in US Soybeans
Nov 15, 2011
Fundamentally, there is already starting to be some early debates about next year's corn vs soybean planting intentions here in the US. There has been early speculation that many of the big corn-on-corn producers in the top producing states like Iowa, Illinois, etc... will be switching some corn acres back to soybeans. The problem is, if soybean prices don't drastically start to gain on corn, they may find this to be a financially difficult decision to make. If you use the current 2012 basis, and assume corn will cost $150 per acre more than soybeans to produce, you will quickly see that in most every high production state corn is close to $200 per acre more profitable than soy. In year's past, if the numbers favored corn by $40-$50 there really wouldn't be much of a shift in acres. Above $100 per acre and there starts to be a little buzz. Once corn becomes more profitable by $150 per acre, massive shifts generally takes place. Informa just made this adjustment by adding a large number of corn acres and reducing the number of soybean acres that US producers will plant next season. It is still awfully early to be talking about next year's crop, but if we end up with 95 million corn acres, supplies could be massive. Right now the trade seems to be thinking the producers will need to be enticed to plant more soybean acres, therefore we have seen a slight bounce in the soy the past couple of days.
There were also some rumors overnight of renewed Chinese soybean interest, but the spreads aren't really confirming this news. I do have to believe Chinese demand and US soybean sales will pick up in the coming weeks, but I doubt by the end of the marketing year we will end up anywhere close to the current USDA export sales estimates. I did hear this morning that South Korea's "Major Feedmill Group" (MFG) purchased three cargoes totaling 180,000 metric tons of corn for late Feb early March delivery. They also picked up over 100,000 metric tons of "feed wheat" at the cheapest price they have paid in over a year. Renewed global supplies simply continue to weigh on prices, despite demand staying strong.
I know many of you are tired of hearing about how great South America is doing, and how early Brazilian planting is putting them in position for a massive soybean crop. Unfortunately, those are the facts. I have however heard from reliable sources that heavy rains in some key growing regions are starting to worry some of the larger producers, as they fear the odds are quickly increasing in regards to a major rust problem hitting the crop. It's tough to find anything really bullish to talk about these days when it comes to Brazil and their soybean crop, but this is certainly something we will need to keep our eye on as we move ahead. Especially with many now estimating Chinese soy demand is starting to inch higher.
Just be careful feeling too optimistic about the soybean bounce the past couple of days. If you look back at the Jan soybean chart you will quickly see that since October 14th (one month ago) we have broke about $1.00, falling from a $12.83 high to an $11.67 low just three days ago. We are certainly at the lower end of the recent range, and my suggestion is if we get a nice bounce don't be afraid to price more of your 2011 and 2012 bushels.
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