Soybean bull roars
The soybean bull continues to roar, running back to recent highs and finding more support in spite of a negative report for acreage (300,000 more acres). Yield was cut in the report, though, and that left carryout at somewhat tight levels. The initial market reaction to the report was to drop 20c, but then the market rallied back to positive gains in the November contract to form an upside reversal.
Even more impressive on charts is the upside reversal in corn and wheat. Corn had a negative report, with USDA hiking yields above 159 bu/acre in spite of a very late crop (frost susceptible). But traders made a different call, with buying emerging after prices were down 8c on the open yesterday. The buying continued until we were 7c higher, and closed with 5-6c gains and forming a very convincing upside reversal. Charts already were turning higher, but the upside reversal might be icing on the cake. While USDA shows negative fundamentals for corn, maybe traders know something about the frost susceptibility??? A normal frost date might do a lot of damage (more so than last year's threat), and the trade might be too comfortable as they were bailed out of last year by a very late frost. Even still, crops took forever to dry down last year in spite of a mid-October frost. We may not be so lucky in 2009.
Wheat might be the biggest sleeper, with new lows on a negative report, followed by an upside reversal and a strong close. After all, everyone knows wheat is a bear market that can never go up. Supplies are huge, much larger than before and everyone knows the US has a bumper HRS wheat and durum crop (and USDA more or less told us so). Since everyone knows wheat has to keep going down, that might be exactly when the bottom is in! Pro Ag notes Canadian wheat might be very susceptible to frost as well as US corn, and an early frost could trim production considerably. We note USDA cut Canadian wheat production estimates by 1 MMT yesterday - do they know something we don't?
Overall, the grain fundamentals are negative (if you don't look at the frost factor), but prices remain stable or higher. Perhaps there is something pushing grains into a bull market besides frost risk? We note that outside markets are supportive, with the dollar continuing to run to new lows, the Crude oil strong, and the DOW indicating our worst news is behind us. Perhaps grains just simply want to go higher on the inflation balloon, with the inflation helium lifting all commodity balloons (a rising tide raises all ships???). We note that world sugar prices have doubled the past 6 months, and cotton looks like an emerging bull market as well. Perhaps there is more to the marketplace than just the bearish numbers USDA keeps kicking our way?
Watch for more support in grains, as the market recently has whispered of an emerging bull - not only in soybeans, but in corn and wheat as well (and maybe even all commodities!).