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The never ending soybean rally

Agriculture.com Staff 04/17/2009 @ 6:05am

Soybean futures prices continued their amazing rally this week as the Chinese continue to buy old crop beans. They are buying from the US and Brazil, but continue to avoid Argentina.

The Argentine farmer is sitting on year old beans and now is harvesting another (drought reduced) crop. It's the unreliability of the supply, not necessarily the size of the supply, that has China and other buyers avoiding Argentine beans. What happens if there is another farmer strike to disrupt supply? Plus the root of the problem, the soybean export tax, is still in place, making farmers reluctant to sell.

The Brazilian ports are somewhat constrained in terms of how much volume they can handle. So while the Chinese are purchasing mostly Brazilian beans, they also buy a few cargoes of US beans. With old crop carryout very snug, how long can this continue?

The next question is "what price discount would cause the Chinese to wait until new crop supplies are available?" A dollar a bushel is a possibility (that objective was reached today based on futures price) or perhaps it needs to be larger. Or maybe the Chinese are not price sensitive?

The Chinese do have domestic soybeans that they could crush. Like corn, the Chinese government has been on a campaign to purchase domestic beans-and this occurs at higher prices than imported beans. It keeps farmers happy, but the interior crush plants have suffered. The coastal crush plants use the cheaper imported beans and have an advantage selling the products. The government has released small quantities of beans, but not enough to narrow the spread between local prices and imported prices.

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.

Soybean futures prices continued their amazing rally this week as the Chinese continue to buy old crop beans. They are buying from the US and Brazil, but continue to avoid Argentina.

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