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Argentine news could be bullish for U.S. soybean prices

Agriculture.com Staff 08/21/2009 @ 5:28pm

Soybeans: It has been some time since the market received new news from Argentina. Overnight, their congress granted the president the power to determine grain export taxes for one additional year. This news could have bullish implications for soybean prices. The first effect is we can be certain is Argentine farmers will be protesting and blocking roads yet again after this spring's harvest. The second effect is soybean taxes could remain high again. Both of those factors imply they may not export as much as the trade thinks.  

The drought this past year helped cut their soybean crop by 31%. That production problem, as well as the government’s influence, helped limit their exports. Allendale is currently plugging in a 48.5 million metric tonne production for the crop they will plant this October and harvest in spring. USDA is using an even larger 51 mmt figure which would be a record. One thing we have to keep in mind with this congressional decision is it is possible it will get reversed. The Argentine president's political party lost recent elections and her power over congress will be broken when new politicians take office in December. What will be one of their first actions? So, while today's news is bullish, we cannot guarantee it will last. Putting yourself in China’s shoes…you've got to buy soybeans and right now the US is the cheapest shop in town. However, when you get to October, and are starting to buy for spring deliveries, who will you buy from? Argentine could actually be planting a RECORD crop. Brazil is looking at a crop that is only 1 mmt off its record.

Between now and October we expect China to continue their frantic pace. Most that will be focused on procurement of US soybeans. In other words, the trade will have ample good export news to focus on. As of August 13 USDA reported they had purchased 6.9 million tonnes of our new crop. This week alone, they have bought an additional 866,000 tonnes which puts them at 7.8 million. Currently USDA has total exports for new crop equal to old crop levels at 1.265 billion bushels. It is simply inconceivable to us to see how USDA can think that way when our two prime export competitors will increase production by 25% this year. Instead we still must hold to the idea that during October, when South America is planting, the Chinese will slow their buying pace sharply. USDA will also at that time start cutting back its export estimates as well. Seeing an additional 50 to 75 million bushels added to ending stocks after harvest is very easy to see.

Direction: Our view remains intact that 900 is a good target for the November contract at harvest. This market could take a stab at 1000 from now until then be we do not look for it to last. As long as there is no frost damage then 810 is our official forecast for after harvest.

Trade Idea(s): (08/13) Sold November 981 1/2, risk a close above 1002, objective 908. Closed 973. Option Strategy(s): (06/09) Sold Nov 1240 call/sold Nov 800 put 62 1/4, risk at 29, objective 20. Closed 11 3/4. (06/16) Sold Nov 1220 call 45, risk at 24, objective 0. Closed 7 1/2. (08/12) Bought Nov 1000 put/sold 1100 call for even, risking to -22, objective 100. Closed 53. (08/21) Sold Nov 1100 call 20, risk to 30, objective 0. Closed 20 1/4.

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