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Long term soy fundamentals

Agriculture.com Staff 11/16/2007 @ 7:18am

The soybean market reminds everyone that there are a few basic fundamentals that are going to last for the foreseeable future. First, there is a well advertised battle for acres that, for this year, means soybean prices must rally to encourage farmers to plant more acres in 2008.

Last year, corn prices did "too good" a job and encouraged a record shift in acres. So the soybean market tries to compensate. The back and forth really just shows the long term tightness in supplies the market must deal with for the next few years.

The second long term fundamental influence is China. First, China does not grow that many beans. They decided long ago to buy soybeans and products rather than try to grow their soy needs. Therefore, they have become the world's largest importer. Their boy needs grow, their meat and poultry industries grow, their incomes grow, their meat purchases grow! What a powerhouse economic growth can be!

This year, in addition, the Chinese government has decided to stockpile soyoil for the important Chinese New Year celebration. Food inflation is a hot topic in China and the government is willing to spend money to ensure the important ingredients for cooking are available and reasonably priced.

Basis Levels

It certainly is worth repeating that basis levels continue to tighten significantly in this post-harvest season. Farmers have apparently squirreled away a much greater percentage of the crop than expected. Now it is up to the market to find the price level that will cause a change in behavior.

It may also take the passage of time before more farmer selling occurs-how many are willing to start emptying a bin when it was just filled 3-4 weeks ago? Meetings with tax advisors will also continue and could result in some 'evening up' selling. However, this is probably not a lot of volume.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The soybean market reminds everyone that there are a few basic fundamentals that are going to last for the foreseeable future. First, there is a well advertised battle for acres that, for this year, means soybean prices must rally to encourage farmers to plant more acres in 2008.

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