Dr. Jekyll & Mr. Hyde soybean market
Soybeans washed out longs in Sept. contracts this week, and the erratic nature of the nearby futures has certainly been typical of a market with zero stocks left going into delivery, and with plentiful new crop supplies coming on. New crop soybeans dropped hard yesterday too, and if we are consistent with recent soybean trade, there might be one more day of hard down moves left in this market.
Recently, we've dropped about $1 in just 3 days, then stabilized for a week or two, then rallied back with the nearby old crop month with its tight stocks situation. Then stabilized for a period, and then sold off sharply again. Problem is that we are soon to expire the old crop month, and only basis will be left to take care of the attraction of old crop stocks out of the holders hands. But you have to wonder what type of mentally challenged person still has old crop soybean stocks on hand! If they haven't sold old crop soybeans yet, what exactly would you be waiting for? The basis has been strong and there was a huge inversion to the next crop futures for months (still -65c) so anyone who holds soybeans forward the last month or so has to be crazy!
The Dr. Jekyll & Mr. Hyde personality of the soybean market has even affected corn and to a lesser extent wheat, as market analysts get bullish following price strength in the soybean market. Corn rallied 50c at one time with the soybean strength, but couldn't hold those gains (like most of the crops) due to the excellent condition of 2009 crops. Now that it is becoming more obvious that 2009 will be a bin buster year, prices are drifting lower again for corn and wheat. Look for a test of recent lows again in both crops. We note that FC Stone estimates were larger in Sept. at 162.7 bu corn and 42.6 bu soybeans - providing some bearishness to this week's trade. Weather forecasts continue to warm, leaving us with little frost threat the next 2 weeks.
Pro AG is very concerned about further price pressure in corn, wheat, and soybeans as we head into the closing out of 2009 crop prospects with the crop advancing further towards record shattering large crops. Pro Ag yield models were up sharply this week based on crop conditions (which were mostly unchanged), with soybeans up a huge 0.67 bu/acre to 45.5 bu/acre - a record shattering yield! This is up a huge 2.2 bu/acre in August, and indicates USDA numbers will have to rise from their 41.7 bu/acre figure to 43.9 bu/acre in the next report. They still might be sandbagging the yield potential for frost threats, but either way another 160 mb production won't be bullish to soybeans. Ironically, soybeans posted only a slight loss on Nov. futures during the month. Either we were underpriced going into August, or we are now overpriced on soybeans. The bulls contention of an early frost is waning, and damage at a normal frost date might be 0.25-0.5 bu/acre, so either way production numbers are going up in subsequent reports. We do not want to be long soybeans!