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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
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!
The corn yield model also jumped to 165.2 bu/acre, up another bushel from last
week. Corn yield potential has risen 6.5 bu/acre during August, or about 500 mb
from last months production estimate. That's bearish, and prices will need to
reflect that by harvest. We believe we can cut 2-3 bu/acre off the corn yield
with frost damage considering the current weather forecast; that won't be enough
to keep us from hitting a record large corn yield. A late frost would likely
mean 170 bu/acre corn and 45 bu/acre soybeans - numbers that could take harvest
lows below $2.80 Dec and $8 Nov. soybeans. We remain bearish even if some frost
damage occurs on the crop!
While the Dr. Jekyl/Mr. Hide nature of the grain market has been troubling and
difficult, Pro Ag fears the next phase the market will go into once Sept.
soybeans expire is just simply Dr. Jekyl, with our Mr. Hide sharp price rallies
to end, and with grain prices possibly dropping further than almost anyone can
anticipate. It could get really ugly from here, especially if frost stays away
from this crop into October!
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgement and do not
guarantee profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.
Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email
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.