Soybeans Continue To Rally From the November Low

December 17, 2012 12:13 AM

What Traders are Talking About:

* Soybeans continue to rally. Demand is leading the price recovery in the soybean market, with China actively gobbling up U.S. soybeans. But it's not just export demand that's supportive. NOPA crush data Friday was strong, signaling domestic processors are also trying to get their hands on as many beans as possible given profitable margins. Those profitable margins are expected to last into early next year, but then will likely fade. Export demand is also likely to fade by the middle of the first quarter next year as South American soybean supplies hit the world market. But for now, export and domestic demand is strong -- strong enough to keep traders buying soybeans in the face of macro-economic uncertainty and prospects for record South American production.

The long and short of it: The demand side of the market is telling traders to keep buying soybeans, especially given the tight domestic 2012-13 carryover projection.

* Fiscal cliff talks building. Our sources indicate fiscal cliff talks have become more frequent as the year-end timeline for a hope-for resolution to the situation draws closer. House Speaker John Boehner (R-Ohio) proposed allowing tax rates to rise for the wealthiest Americans if President Barack Obama agrees to major entitlement cuts. Boehner in recent talks with President Obama suggested hiking tax rates for top wage earners, including those with annual incomes of $1 million or more annually, beginning Jan. 1. Boehner also reportedly wants to use a new method of calculating benefits for entitlement programs known as "chained CPI," which would slow the growth of Medicare and other federal health programs and save hundreds of billions over the next decade. But the proposal, as a whole, still is not acceptable to President Obama and Democratic leaders in Congress.

The long and short of it: The fiscal cliff uncertainty is limiting investors' willingness to add risk, especially with the holidays approaching. But the soybean market is proving not all investor buying interest has been curbed.

* China to keep stable economic policy. Chinese leaders pledged to maintain "prudent" and "proactive" economic policies in 2013 as the country strives to promote economic growth. Chinese leaders indicate they are likely to stick with a growth target of 7.5% in 2013, the same as this year. To help its economy protect against global economic headwinds, Chinese officials will continue to promote "appropriate" growth in bank loans and attempt to keep the yuan stable. Meanwhile, in an attempt to boost domestic demand and promote industrial output, China announced it will lower import tariffs on some 780 goods, starting Jan. 1. The reductions are temporary, but no specifics were given.

The long and short of it: China's economy has turned the corner after slumping the first three quarters this year. But the Chinese government must continue to use pro-growth policies given the uncertain global economic environment.


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