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New soybean lows

Agriculture.com Staff 12/04/2008 @ 9:16am

Soybeans made new lows this week, dropping below what looked like promising support at $8.38 Jan. -- a potential double bottom. Penetrating that level opens up a new potential low in the marketplace, as both corn and wheat both have dropped to new lows this week as well. But soybeans were more promising fundamentally, with very strong export shipments and sales so far this year and still relatively tight stocks on the books.

South America is now expected to have about the same acreage as last year as prices have dropped considerably from summer levels, so things are getting interesting. Pro Ag notes while markets have been running to new lows, the momentum on the downside is starting to abate, with a more round type bottom forming so we finally might have found 'value' in the marketplace.

The only variable left that makes it difficult to predict is the uncertainty regarding the world financial system, with the U.S. still wavering in our financial markets following a rocky Fall that has put about everything of value in jeopardy of significant depreciation. Stocks seem to be teetering between 7500 and 8500 Dow Jones average, and for now that seems to be support to the marketplace. However, we still find only bad news on CNN or CNBC, with the 'chicken little' news media still reporting that the 'sky is falling.' There is no question that consumer confidence seems to be at an extremely low level, dangerous it seems for any economy. And fear seems to be the dominating theme in news programs and reports from around the U.S. and world.

We have been concerned seeing interest rates drop to new lows (T-Bonds and T-notes at new highs), and also the U.S. dollar rallying -- signs that the U.S. economy is still headed in the wrong direction with a severe recession at hand. Not that we mind a strong dollar and low interest rates! But this is not a sign of a market that has too much government spending such that is was 'crowding out' private spending. Instead, it appears that private spending has withdrawn at a much larger rate than government has expanded spending/borrowing, so net interest rates have actually been declining in spite of historically large government programs. It is alarming that private investment has dimmed so considerably!

So here we are at a crossroads for grain prices (and perhaps the DOW, interest rates, the US dollar, and on and on). Will grains recover from here??? Or will the financial system continue to see more doubt about its stability and success? A crumbling financial system or a depression of any magnitude would be devastating to the U.S. economy, and grains would not be immune to the impending disaster.

So for now, grains seems to be at the whim of the financial markets, with financial markets having perhaps the largest influence on grains the next few months of any other factor. There aren't many times in history we could say that, but in fact, this might be perhaps the first where supply and demand of the grain in question weren't the most important factor facing us.

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