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Soybeans due for Halloween trick?

Ray Grabanski 10/31/2012 @ 3:46pm President, Progressive Ag www.progressiveag.com

Soybeans have rallied back to $15.50 or higher, pushing up on more 
concerns about SAM weather. Specifically, it's been too wet in southern Brazil and Argentina to plant, and too dry to germinate planted soybeans and corn in northern Brazil. So weather recently has been adverse. But forecasts today indicate an improvement in weather, with seven days of dry weather in southern Brazil and Argentina, and northern Brazil is blessed with the best rains so far this season.  

The 8- to 14-day forecast turns wet for all of SAM, following seven days of above-normal temps that should allow rapid planting progress across SAM. That could be the tide that turns the soybean market over the coming week. Not only will SAM weather improve if this forecast is right, but we also will get the November USDA crop guesses as well from private firms in the next few days, and the USDA report next week will update production numbers. While USDA has shown a reluctance to raise corn yields (in spite of much higher northern Corn Belt yields than expected), they have shown no such reluctance in raising soybean yields.  

After all, they hiked soybean production 9% in the last report, and Pro Ag numbers indicate they probably need to go up again in the November report to near 39 bushels an acre, another 1.2 bushels an acre, or about 90 mb above the October report of 37.8 bushels per acre. This actually would be a modest hike compared to last month!  

Without another hike in exports of that much (although exports have remained very strong for soybeans), that will ease the U.S. ending stocks number a bit, as the tight 130-mb ending stocks number in October is still a bit concerning to the soybean market. But again, they already hiked them 210 mb (or 20%) in the October report. Are they indicating that whatever the U.S. can produce, China will buy? Or is there a limit to how strong U.S. soybean exports can be? Recently, the export shipments and sales have been extremely strong for soybeans (more than corn and wheat combined! Of course, corn and wheat exports have been pathetic in the recent period).

So when you add it all up, the next week or so could bring more negative news in the soybean market, or perhaps even the last bit of negative news from the U.S. numbers due to production (which is growing larger, not smaller). Once these U.S. numbers are reported, however, it will be the SAM weather situation that will impact corn and soybean prices. But again, when is the last time that SAM corn/soybean production failed two years in a row?

If we do get negative news on U.S. soybean production in the November report (both private and USDA numbers), how much lower can soybeans go on that news?

Pro Ag still projects harvest lows for corn and soybeans to be near $6.75 December corn and $14 November soybeans. The demand has been very disappointing to corn producers, as it's been about as anemic on the export side as corn has been in decades. If U.S. domestic producers are just as reluctant to use corn at these price levels, it could be that demand destruction in corn is much more devastating than we realize. The combination of demand destruction in corn and supply hikes in soybeans could be a lethal combination following this Halloween. So in spite of disappointing U.S. production due to drought this summer, rent hikes in U.S. production numbers in Oct/Nov reports for soybeans along with poor export demand for corn/wheat might make this Halloween one that brings more tricks to farmers with unsold production, rather than treats!

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