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U.S. holds bean price advantage

02/18/2012 @ 2:54pm

Soybeans traded higher for the session finishing today at 1267 ½ per bushel, which is 9 ¼ cents higher for the day. Good export sales this morning and follow through buying from the China deal were the main cause. The delegation ended up signing deals to eventually buy 13.4 million tonnes. There is also support on dry weather in southern Brazil’s growing areas. Some of what we are losing in Brazil may be offset by good rains in Argentina early next week. We can see why this market is finding some support as demand is not dropping off. The record Chinese deal is just another sign this good demand continues to grow their domestic livestock industry. Another interesting note on why we may see more Chinese purchases down the road is the price of beans between Brazil and the US. Including freight, Brazilian beans can be bought, and delivered, for $547 dollars per tonne. US beans can be bought, and delivered, for $536 per tonne. On a per bushel basis this is about 30 cents cheaper to buy US beans. After seeing this information, it is not a surprise we saw a purchase of 173,000 tons of old crop beans sold to China this morning. Do not be surprised if we can see some additional purchases of beans in the coming weeks. For the entire month of February, US beans have been priced below Brazil and for the month to date we have seen the beans rally 65 ½ cents and the funds for the month have added an additional 30,000 contracts.

US is a Value: The discount between US and Brazil soybeans, for immediate delivery, has widened in recent days. While we have this opportunity we may scratch out a few more sales.

Working Trade:

(02/15) Bought March 1250 put 10, risk to 0, objective 40 cents. Closed 5 5/5.

Cattle Comments: Cash fat cattle trading exploded today with big $5 gains at $128 and $129. This is pretty timely as last night’s chart showed this is typically a strong time until March/April. The bottom line is that after four weeks of packer kill cutbacks they finally reached the point where feedlots said enough is enough. With rumors of an early start to outdoor grilling, packers didn’t want to chance not have supplies for their customers. As we have noted before, packers do have temporary pricing power in cattle and beef prices but it cannot last forever. April futures are now $2 higher than Allendale’s projected $129 expiration. We will not consider calling a top in cattle, for the seasonal decline into summer, until mid-March or so. Our bias for far deferreds remains clearly intact with a target for October at $138. Tonight’s chart gives an update on the real story in this year’s beef market. The base unit of production, calves and feeders, are where the bull story lies. Next week’s Cattle on Feed report should indicate the second month in a row of declining placements into feedlots. It should offer further evidence that whatever tight supplies the current market is arguing about on the live cattle end, won’t hold a candle to what lies in store in the second half of the year. Our bullish target for spring feeder prices has already been surpassed by futures. We are not turning bearish though. Our target for fall calf sales, at $176.68 for October steer calves, would be 35% over last fall. Avoid trying to call a top in feeder prices for speculative trading this year.

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