Soybean top: Is wheat next?
The first two days of this week certainly look like a top in the soybean market, as Monday's 50c lock limit down and Tuesday's -38c move left a 88c, two-day decline on charts.
That looks awfully familiar to most tops, and for the first time it seems possible that the soybean market has topped. Can wheat be far behind?
While the technical charts have changed, the fundamental picture has not changed much as the yield potential of the 2007 crop has remained unchanged for the last 4-6 weeks in both corn and soybeans. In fact, Pro Ag yield estimates indicate last week was the first in which corn/beans both declined (albeit very slightly), yet prices get pounded on Monday morning! What gives?
While it might appear that not much has changed (corn yield potential still 152 bu as it has been most of this summer, soybeans at 42 bu+), TIME is passing! And while the speculative community was banking on summer weather problems and pushing markets ever higher (in wheat and soybeans), TIME passed with no change in yield potential. Most US crops still have above average crop ratings, indicating slightly above average crop yield potential of virtually every crop. We have also come into pollination of corn and blooming stage of soybeans with little crop problems, and most of the crop is now 1- 2 weeks ahead of normal development (and has been almost all year).
In essence, there is little time left for the crop to fail, and given the hefty premium we put into corn last winter, and wheat/soybeans this spring/summer, there is lots of room for markets to go down for the next 3 months! Pro Ag has said before in this column that corn could drop to $2.80 Dec futures at harvest, only to bounce right back up to $4+ territory by spring 2008 to attract more acres (again). Soybeans hit $9.50, and could easily drop to $7 at harvest, only to rally back to $10+ beans by next spring in the ongoing acreage bidding war between corn and soybeans. Wheat prices could drop to $4.50 at harvest, only to rally to $6/$7 by next spring in what seems like it could become an annual acreage bidding war in spring.
Funds are the name of this money game, and "what the funds giveth, the funds also taketh away"! But still, farmers have to be relatively happy with the pricing opportunities and the agricultural outlook now with our new 'food to fuel tank' mentality in the market. Food got so cheap recently after 35 years of price stagnation, it is more profitable to burn it up in our US fuel tanks than to sell it to the rest of the world at the prices they are willing to pay.
That is finally starting to change, but its about time! Thank God for funds! Farmers would have never given themselves the huge 'raise' that a 50% price appreciation provides in one year, and neither would the buyers have tolerated it. Without fund trading, we never would have had the volatile markets of fall 2006/2007 and the increase in profitability it has given US grain farmers! Perhaps the "Lord giveth us the funds benefit, and the Lord taketh away the funds benefit" as well throughout the trading year?