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Ron and Sue Mortensen: China swings a big stick

Agriculture.com Staff 07/31/2009 @ 8:45am

The USDA announced a huge 1.9 million metric ton sale of new crop soybeans to China this morning. This news from the daily reporting system added fuel to the already positive fire that began during overnight trading. Soybean prices were off to the races.

This morning's weekly export sales were also positive (China bought new crop beans during the past week), the dollar was weaker, plus the stock market and crude oil were both sharply higher.

The uncertainty over the intentions of China causes a nervous "bullish or bearish" reaction to every news item. This size of sale announced this morning could be simply a routine contract. Bullish or bearish? The Chinese government's auction of soybeans was initially seen as bearish, but the failure to sell anything is seen as bullish, as US beans are cheaper and of better quality than government stocks. Their large purchases of new crop supplies this early are seen as bullish, with market participants constantly asking "what if it continues?' The US has a record amount of new crop sales on the books for the end of July.

So soybeans currently are one of the most positive commodity stories. Corn and wheat follow along, but not nearly to the same extent. The corn crop is farther along in terms of development and weather will soon become a less important factor, unless early frost forecasts surface. Corn futures are still stuck in a large 30-40 cent range. Wheat prices (over 80 percent harvested for winter wheat) simply struggle along the lows.

Next week, perhaps as early as Monday, private estimates of corn and soybean crop sizes will be released. In the same way that demand has caused price volatility, news about supply can have the same effect. Bullish or bearish?

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 USDA announced a huge 1.9 million metric ton sale of new crop soybeans to China this morning. This news from the daily reporting system added fuel to the already positive fire that began during overnight trading. Soybean prices were off to the races.

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