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South America and world soybean prices

01/17/2014 @ 5:26pm

Since the release of the Government crop report a couple weeks ago, the direction of prices for both soybeans and corn has been mostly higher. A look at the long term charts for both grains shows good odds for a trend higher from now through spring.

It is easy to understand why corn prices might trend higher during this period. Most of the world supply of corn is grown in this country. Therefore when harvest is over and bin doors are locked higher prices are necessary to encourage farmers to bring corn to town. At least that is a widely held theory. Until last week’s report it appeared that the theory was not going to hold water in 2013-2014. Then the bullish numbers showed up on the report and the old theory seems logical again.

The story is a little different for soybeans. With at least half of the world crop now being grown in South America, it seems logical that prices would drop as South American beans  become a factor in the world market. Instead it is quite common to see soybeans rally going into spring as they have been this week. How can this happen with a big crop in this country and an even bigger crop from south of the border?  I have a theory !

It is common knowledge that odds are good for prices in this country to rally in the early summer as traders evaluate the possibility of production problems with the growing crop. The most likely time for that rally is June. The dead cat bounce is also well known. The most likely time for that market move is October and November.  The timing of these two moves are based on growing and market conditions in the United States. However, the production conditions south of the border are half a year out of phase with those in the United States. 

My theory is that just as growing conditions are half of a year out of sync, so is the market psychology. If my ideas are correct, the dead cat bounce in this country should come at the approximately the same time as the spring rally in Brazil. If that is the case market news now should be concerned with drought or excess rain down south. In fact just this morning a farm news show expressed concern about the prospects for dry weather in Argentine. That being the case, the spring rally we will probably get in this country should match the dead cat bounce for South American soybean farmers. If the seasonal trends follow true to form, drought or excess rain concerns in this country should come about the time South American soybeans are rebounding in price following their harvest low. This would match the June period mentioned earlier. 

No one can say with any certainty why grain prices move as they do. Anyone who farms as a business responds psychologically to price movements and growing conditions. My theory is just that, a theory. However, I have seen these moves repeat many times over so many years. I have used the seasonal charts as marketing tools long enough that I no longer get frustrated by seemingly illogical price moves. Whether you accept my explanation we all need to have a way to cope with price moves that do not seem to follow logic based on fundamental factors.   

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Soybeans Rally on Demand, Weather