Soybeans Strengthen Amid South American Crop Concerns, Improving Demand

February 14, 2012 03:07 AM

What Traders are Talking About:

* South American soybean concerns rise. Parts of southern Brazil are burning up under persistent hot, dry conditions. The primary areas of concern are southwestern Parana and Rio Grande do Sul. Conditions are forecast to remain hot and dry in these areas this week, with the next good chance for precip next Tuesday and Wednesday, although forecasters aren't overly confident this rain event will develop. Pro Farmer South American consultant Dr. Michael Cordonnier lowered his Brazilian soybean forecast by 1 MMT to 69.0 MMT this week.

The long and short of it: South American crop concerns are not only a supply-side issue. End-users are also taking note and demand for U.S. soybeans is picking up.

* Soybeans also battling for acres. After bottoming at $5.81 in December, the new-crop soybean/corn spread is nearing $7.00 and the new-crop soybean/corn price ratio has widened to 2.22:1 after dipping under 2:1 in late 2011. And technically, November soybean futures are strengthening as the contract posted a potential breakout above the November high on the daily chart yesterday, making the $13.00 mark the next upside target. Soybean futures are making a push to "buy" acres -- or at least not willingly give up acres to corn.

The long and short of it: The push to "buy" soybean acres is yet another indication traders are growing increasingly concerned with South American crop prospects.

* Euro-zone: some good, some bad. Ratings agency Moody's cut its credit peg for Italy, Spain, Portugal, Malta, Slovakia and Slovenia late Monday, while warning France Britain and Austria may be downgraded. There are also concerns about Greece's implementation of its new austerity package passed over the weekend. Greek leaders are reportedly trying to find another 325 million euros in budgetary cuts and assure EU leaders they will adhere to terms of the austerity package if they get the promised 130 billion euro ($172 billion) in bailout funding. EU financial ministers are scheduled to meet Wednesday and vote on the Greek bailout. Meanwhile, the German ZEW investor sentiment index jumped more than expected to 5.4 from -21.6 in January.

The long and short of it: Investors are likely to be cautious about adding too much risk ahead of Wednesday's meeting of EU finance ministers. But even if Greece gets the bailout funding, it's little more than a band-aid on a major cut.


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