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Soybean market has full support
The soybean market remained the star attraction in the grains and oilseeds arena this week, with Jan futures settling at their highest level since August. With a majority of the US soybean harvest now complete, and fresh supplies now flowing through the pipeline, the enduring strength in the soybean price is clearly more a factor of sentiment than statistics. Basis levels have had a soft tone through the Midwest as harvest pressure emerged, but strong futures buying by speculators and position traders has ensured the overall bias of this market has remained higher for the past several days.
An upbeat chart pattern, continued strong buying by China and a weakening US dollar have all contributed to fueling gains in this market, and look set to remain important drivers of price action going forward. Capitulation by short traders who have been stung by this market's ability to shrug off bearish pressure has also given prices a lift lately.
Looking forward, overall trading volume is set to lighten as the year-end nears so more volatility is guaranteed. This could set the stage for even steeper price gains should the chart-based bulls maintain their dominant position. However, profit taking will also be on traders' minds as the year winds down, so we are expecting the occasional aggressive pullback in the days ahead as well.
In all, the beans have defied gravity impressively for much of the year, and look set right now to finish November out on the offensive. However, the first harvest of the likely record-large South American soybean crop will begin in late January, so it will not be too long before China has another potential supplier of beans to shop from. We are expecting greater export competition from S. America to sharply reduce our export potential from the US, and apply pressure to prices over the opening months of 2010. For producers, we think this price outlook means that crop sales should be made sooner rather than later, and that any further rallies in the weeks ahead should be used as opportunities to lock in profitable sales.
Dec corn ended the week on the defensive and settled largely flat on the week. Strong outside buying interest has continued to prop prices up, despite emerging harvest pressure and weakening basis levels, especially in the West and North where harvest progress has outpaced that of Illinois. Rains slowed cutting activity this week to also limit price pressure, while fresh talk of disease and toxin worries also played a supportive role. However, we are still concerned that the US national corn yield will be high enough to cause a steep price decline once the gut slot of harvest nears.
Producers are advised to use any upcoming rallies as further selling opportunities, not just in 2009 prices but also for the 2010 crop. Lower input prices and fewer winter wheat planted acres will mean corn acreage will remain very high in 2010, which means supplies will stay ample. Meanwhile, there is concern about the demand side of the equation as poor exports and stunted demand from the feed sector highlight the delicate appetite of consumers at these prices.
Wheat prices ended the day slightly lower but overall enjoyed a strong week thanks to continued inflows of 'outside' money. The prospect of fewer planted winter wheat acres has spurred fresh investor interest in this market lately, even though global stockpiles of wheat are more than adequate.
There's no doubt fresh weakness in the US dollar in the weeks ahead will offer further support to wheat prices, but we are concerned that a harvest-led break in the corn price will drag wheat prices sharply lower too, so advise producers to top up sales on near term rallies and look to protect against another slump back below $5.
New Crop Corn ('09): You should be 85% protected, including cash sales, puts, and put/call spread strategies. Call if you have any questions.
New Crop Corn (10): You should be 40% sold.
New Crop Soybeans ('09): You should be 85% protected, including cash sales, puts, and put/call spread strategies. Call if you have any questions.
New Crop Soybeans (10): You should be 30% sold. Leave orders to sell a further 10% at $10.59 Nov 2010 futures.
Also, on 25% of your projected 2010 bean production, you should buy Nov 2010 $8 puts then sell $6 puts and $14 calls. Pay 5 cents or better. Call us if you have questions.
New Crop Wheat ('09): You should be 70% sold in your 2009 wheat crop. Re-own cash sales by selling March $4.40 puts and buying March $6 calls.
New Crop Wheat (10): You should be 10% sold. In addition, put orders in to sell an additional 10% at $6.79 Dec 2010 futures, and another 10% at $6.99 Dec 2010 futures.
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Gavin Maguire is director of E Hedger, a commodity trading and marketing firm based in Chicago.