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Without Major Production Problem, Beans Will Stay Below $10, Says Analyst

Yesterday, it looked like the bean rally was in its final stages and after today’s sell-off, the spring top could be in place. The front month May contract settled today 47 ¾ cents off of the high scored Thursday night.  

The Argentina forecast went dryer, which should allow them to dry out and harvest progress. This gave the market a negative tilt today that helped pressure the beans, meal, and oil lower. Profit talking and lack of aggressive fund buying were the dominant reason for today’s sell-off. A massive amount of money has been thrown at the market recently, and this was the fuel of the rally.

When this “hot money” wasn’t there to support the market, it broke. Fundamentally, we cannot find a reason for beans to be trading above $10.00 without a major production problem. Yesterday, the Buenos Aires Exchange cut its crop expectations to 56 million tonnes down from its previous estimate of 60 million tonnes estimate. This is in line with what most market analysts have been thinking. If the 4-mmt production cut is accurate, it will drop the world carryout to 75 million metric tonnes (mmt). Even with this cut, world stocks would be the second highest carryout ever; down 2 mmt from last year's all-time high carryout of 77 mmt. Traders should be prepared for another volatile trade next week.

If the weather continues to be viewed bearish, we could see more downward pressure. On the other hand, if the fund money that has been the driving force of the rally just took today off and shows back up next week, they could push the market right back and potentially above this week’s highs.

 

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Rich Nelson
Allendale Inc. 
815-578-6161
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