My Thoughts on Soybeans
Apr 13, 2011
A Deeper Look Into The Soybean Trade
I have had a lot of calls as of late about Soybeans. If you look back on reports at the end of March and the beginning of April, I told you to consider being long corn and short soybeans. I hope some of you took that information to the bank, as it has been a terrific play. Moving forward however you have to wonder how much of the bearish news the trade already has priced into to the soybean market. My buddy, Andy Daniels, made a great analogy yesterday. Explaining that if you were to look back to the beginning of 2011, the trade had us all convinced that China would be buying 60 million metric tons of soybean in 2011, now it looks more like they will only be buying 53-54 million metric tons at best. Also take into account that we were all thinking the Brazilian soybean crop would be around 66 million metric tons and the Argentine crop was going to be around 46 million metric tons. Today the market is thinking more like 72 million metric tons for Brazil and maybe over 50 million metric tons now for Argentine. It doesn't take a rocket scientist to figure out with China reducing their demand for soybeans by 6 million metric tons, and South America producing an additional 10-12 million metric tons of soybeans that the trade is now trying to digest and figure out what they are going to do with an extra 16 to 18 million metric tons of soybeans. Because of these thoughts the bean trade has fallen apart versus the corn trade. The market essentially has been able to justify the lack of fewer soybean acres being planted because of setbacks in demand and a boost in production. Let's take this one step further however and conclude that we are not the only birds in the nest that know which way is up. In other words, most who are on top of this market know this information and that is exactly why it has been under extensive pressure in comparison to corn. Do I think there is more room to push beans lower? Certainly, especially if money-flow continues to scale back, and China cancels more shipments. I do however feel a ton of the "bearish" news has been priced into the market. Those cards have been turned over and are no longer in the deck. Leaving the deck now with a slight "bullish" count. You have the weather cards still in play, you have the thought of China cutting more soybean acres in play, you have political issues and unknowns in Argentine, you have a rapidly rising Brazilian currency compared to the US Dollar, you really only have one way that Chinese crush margins can go from here (and that is up). Yes, the soybean market has been the dog of the group, but deservedly so. Moving forward, I doubt it becomes the leader, but I am starting to like the risk to reward in relevance to both corn and wheat. We still need to produce a crop, and we still do not know for sure how many acres will be planted, I think after news of falling Chinese demand is digested you have to try and start hunting for bargains in the bean market. I just wanted to give you some thoughts on where I think beans are headed and what has happened recently in their markets...
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