Floor trader shares thoughts on soybeans
Every once in a while, I like to pick the brain of one of my favorite sources on the floor of the CME Group, regarding his thoughts on the corn or soybean markets.
As of this week's trading, the soybean market has hit four-month lows. The soybean market has pulled back 7.0% in the last month.
It's time now to talk about whether continued losses are ahead for this market. If so, many farmers are wondering if they should be pricing both old- and new-crop soybeans earlier than planned. Trading over $14.00 per bushel, soybeans remain at an impressive level.
In an email Monday to my floor source, a trader requesting anonymity, I provided this grocery list of items that seem to be impacting the soybean market. To offer his perspective, the trader had the following list to work from:
- South America weather
- U.S. soybean export pace
- A lot more corn acres being talked about next year
- South America’s current soybean crop size
- January’s USDA 2012 harvested acreage estimate
- World palm oil supplies
What am I missing?
In a nutshell, the trader's response focused on less domestic demand of soybeans and larger production from multiple soybean-producing countries around the world. Instead of projecting a price-point for the coming weeks, the trader focused on the bigger picture of the soybean market.
In his own words: "I would remind the farmer that the last five years have seen a boom in domestic demand, unprecedented thanks to the biofuel mandates. But markets are adjusting, and foreign consumers and producers have not stood still, barriers to GMO products have come down, and acreage in South America and the Former Soviet Union (FSU) have grown so much that that area of Europe is now a significant player in the feed grain market. In a good year, the FSU adds 30 million tons to the world's grain production, while in pre-Soviet times (1991) they were a net grain importer.
Brazil and Argentina continue to expand both corn and bean acreage. This year, Brazil has the potential to surpass the U.S. in total bean production. We produced 80 million tons this year, and Brazil alone is forecast to produce 80 to 83 million tons. There is no “La Nina” or “El Nino” weather anomaly this year. And so far, they (Brazil's farmers) are staying on track with planting. There were early problems with flooding in Argentina that could actually add to world bean acres.
Finally, biofuel mandates will be mature by 2015 and current ethanol pace with smaller fuel-base, thanks to higher café standards and poor economy, which means that ethanol capacity has most likely maxed.
These markets are starting to gain back that feel of a more traditional market, being subject more to weather and supply than enamored with demand.
Looking down the road, the USDA February Outlook may highlight large new crop carryout in corn, making me want to sell new-crop corn now, if I am bullish corn or beans on old crop stocks or logistics. I am bull spreading July.Nov or July.Dec, but low water on the Missouri River and reservoir is threatening to shut barge traffic below St. Louis. This could hamper winter exports for old crop. Watch the St. Louis river gauge. There is a threat of river closure, with a current forecast showing a closure level by December 10," the floor trader says.