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$14-$15 soybean range?
With the soybean market taking off nearly $4.00 per bushel in the last 3-months, marketwatchers wonder if the bearish outlook will be turned around while farmers scratch their heads about pricing more old and new-crop earlier than they had planned.
First things first. What is making this market so bearish? A lot of factors, according to Anne Frick, oilseeds analyst with Jeffries Bach.
"What's grabbing the headlines this week, is the bearish USDA data released last Friday that upped U.S. and world soybean production and supply estimates," Frick says.
For those interested in accounting-like ways of keeping track of the supply/demand picture (translation: here comes a bunch of numbers), Frick says the soybean numbers to look at appear on both sides of the ledger.
For the U.S., the USDA added 375 million bushels, or a 13% increase, to the 'supply side' of the balance sheet,
since its September Crop estimate. Short-term, the extra supply is bearish to the market.
However, the U.S. total soybean supply is only 5.0 million bushels above last year's use. As a result, the U.S. still needs to ration usage, Frick says.
"We have to cut usage by 125 million bushels vs. a year ago to secure a carryover of 130 million. Our usage for the first two months of the marketing year is up 151 million bushels. So, you have some significant usage rationing for the year. I suspect we will push that rationing into the spring months," Frick says.
The current strong export pace, highlighted again Wednesday with China buying 120,000 mt of U.S. soybeans for 2012-213 delivery, isn't helping cut usage.
This sale to China might have surprised some, due to that major Asian buyer booking large amounts of soybeans earlier this year.
Dustin Johnson, ehedger grain analyst, sees the market in a liquidation mode and seems to agree that export demand will substantially slow down in the coming months. "The most important factors to watch, in my opinion, are export bookings between now and the January reports, as well as the January stocks number. If this most recent price setback creates new interest in US soybeans again, we will probably have to switch back to rationing mode," Johnson says.
Considering that November is a time when daily U.S. export sales are expected, this year's seasonals are being knocked off of their pace, due to China booking soybeans early.
Other bearish soybean market factors include improved planting weather for South America, and the month of December not being a seasonaly bullish time of the year.
"Along with all of this, you have the U.S. 'fiscal cliff' concerns. So, a number of bearish factors loom," Frick says.
ANTICIPATORY MARKET vs. REALIZED MARKET
With soybeans rallying close to $18.00 per bushel this year, the trade has witnessed the 'anticipatory market', Frick says.
"I do not expect that high to be penetrated. But, in the spring, the world will be dependent upon South American soybean supplies. And then the issue becomes, can Brazil overcome its logistical problems regarding shipping, trucking, and exporting soybeans. How quickly are they (Brazilians) going to be able to get the beans 'out of the door'? If they have poor wet weather, the dirt roads will slow transportation of their crops," the oilseed analyst says.
Because so many beans have already been booked, combined with hopes of a large crop coming out of Brazil, a lot of buyers are not expected to be rushing into this market, during this swing lower, she says.
Looking ahead, Frick sees a 'realized' bull market occurring in the spring of 2013. "If we sit on our heels and wait to ration usage, with the idea that South America will be able to supply the world, a hiccup in harvest season could throw the market into a bullish stance. I suspect we will see that. I see it happening between March-June 2013.
Without estimating a direct price call, Frick suspects the soybean market will hold at the $14.00 per bushel level. "The most likely scenario is that we establish a new trading range between $14.00-$15.00, going into the end of the year. I don't see a lot more downside with this current move lower. But, more likely we see a rally into the 2013 spring and then if things look good with the U.S. crop, a deeper cut from summer into the fall months," she says.
Johnson is telling his farmer-customers to sell all of their old-crop and re-own it by using March calls. "They (farmers) get a better deal on the backward market that way and still have upside potential without "betting-the-farm". I am cautiously optimistic that we will see a rebound in prices as we have not slowed demand enough yet. I have also recommended selling 20% of the 2013 crop," Johnson says.
Regardless of the analyst, farmers are being encouraged to sell parts of the 2013 crop at these prices around $14.00. "Although this is a price below where it was, this market is still pretty good. With such an inverted market, the nearby contract so much higher than the out-months, i don't know how much of a bump you can get," Frick says.