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Soybean market bottom?

Agriculture.com Staff 10/15/2009 @ 7:14am

Soybean prices have moved sharply higher the past seven days, gaining $1.20 in a short period of time as harvest delays have the attention of the market fundamentalists. Technically, soybeans rallied above the recent high, and now with an upside weekly reversal last week technically soybean charts look like they also have bottomed (along with corn and wheat). That's quite a turnaround from just eight days ago, when soybeans were running to new lows weekly.

To turn the market around before much harvest is complete is quite a task for the market, but then again the harvest delays have become numerous around the US, with us having only 23% harvested vs. 49% last year and 57% average. The delays are starting to get some real attention, and combined with a strong outside market situation (new all-time gold highs, a shrinking dollar, and soaring stocks)- soybeans are getting downright bullish!

One has to wonder about the outside market signals -what they are really telling us is that the US and world economy is on the rebound! Perhaps our financial crises is finally behind us, and may the good times roll - happy days are here again!

In addition to harvest delays, strong outside markets, and a bullish technical situation, Pro Ag yield models are also indicating some friendly news for soybeans. In mid-September that yield model was topping out at 45.6 bu/acre - much above the upward revised October USDA number of 42.4 bu/acre. But since mid-Sept., the Pro Ag yield model has dropped about 1 bu/acre down to 44.5 bu/acre. That bushel decline is very unusual for the period of Sept 14 to Oct. 12, and represents a potential loss of about 77 mb of soybean production. So the Pro Ag projected carryout likely dropped from 300 mb to 230 mb (equal to USDA), putting a less bearish outlook on soybeans. The market has taken a more bullish outlook, and some speculate that soybean yields are likely to drop now from the 42.4 bu estimate. Maybe, or maybe not!

Or is it possible that soybean yields, if harvest ever gets going, will turn out to be better than 42.4 bushels per acre? If so, there might be some setback of prices but for now the assumption seems to be that the bottom is in the market. But can we test close to the old lows again (around $8.85)?

It's interesting to note that soybean prices rallying during early October will have an impact on CRC/RA/GRIP price discovery. As it turns out, the base price of $8.80 will turn out to be less than the actual harvest price. Soybean insureds who have a claim (Prevent plant or otherwise) will receive an additional check (with RA/GRIP only if they chose the harvest option). This does have an impact on those with yield losses, as the settlement will be at a higher price.

So as we end the insurance year, soybean prices are jetting higher. Can we hold these levels? Much might depend on the economy, the dollar value, and inflation worries as we move ahead. If crude oil, gold, silver, stocks continue to go higher and the dollar lower, maybe soybean prices are off to the races. But a setback in these outside markets, along with a clearing of weather forecasts that could allow harvest, could put some pressure yet on soybeans as we enter late October/November harvest. Better than expected yields (which seem less likely with every harvest delay) also could pressure prices yet. But the polish on the bearish side of the argument for soybeans has, like corn and wheat before us, slowly metered away from people's expectations.

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