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A Tale of Two Markets

Updated: 05/23/2014 @ 10:27am

The soybean market has been lit on fire again, as market participants once again contemplate the U.S. running out of beans before the new crop harvest. It seems the China default/reroute soy cargoes story is over for now. In addition, there are worries that U.S. imports will not be as large as the USDA believes (90 million bushels), leading to very tight ending stocks. 

In South America, the Argentine farmer has continued to hold soybeans. This is a large amount of soybeans the world market could really use instead of U.S. beans. Argentina has an official exchange rate and an unofficial (blue) rate. Recently, the blue rate has been rising. The farmer will try to wait until the official and unofficial rates are closer together. Right now, the physical beans are a valuable hedge against domestic inflation in Argentina. 

There are also indications that not only have the Chinese gotten out of the default/financial crunch but also that their livestock feeding has become more profitable. While the market has not seen additional old-crop sales, it does seem the fire sale of soybean cargoes is over. Market participants are of the idea right now that the issue was a hiccup in the otherwise strong pace of soy shipments to China. The Chinese continue to take Brazilian beans and are purchasing new-crop U.S. beans.     

The contrast would be the wheat and corn markets. Focused perhaps more on supply issues, traders see rain in the forecast for the drought-stricken areas of the Plains and see a few days of dry weather in the northern states to allow additional corn planting. Depending on tomorrow’s (Friday’s) trade, this could be the second week in a row that corn and wheat close lower. 

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. 

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