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U.S. soybeans to Brazil: Will the market care?

Brazil hasn't bought U.S. soybeans on the export market for a long time. But, that's just what's likely to happen in the coming weeks and possibly months. So, will the market take note, or have traders seen this coming long enough to already factor it in to the U.S. soybean market?

In an exclusive report early Friday, Brazilian reporter Luis Vieira showed as much as 80% of the nation's drought-shortened crop is already forward-contracted, about 20% higher than normal. That means, first of all, the remainder will be rationed and, secondly, stocks used for soybean meal may need to come from a source outside the nation's borders.

So, is it a big deal to the U.S. market? Some farmers say this could likely light the fuse on an unending demand for soybeans, at least until tne next crop comes along in Brazil early in 2013. But, others say the market's been attuned enough to the South American drought and resulting crop shortages that the revelation of inevitable Brazilian purchases of U.S. soybeans is no surprise and, in fact, expected.

"Talk about a story that is old news. Pretty sure the Big Cs (Cargill and China) knew they had supply issues 2 months ago. You know, when beans were $12, not $15," says Marketing Talk senior contributor time:thetippingpoint. "Kind of explains the vertical $3 rally. The point is it explains the past, not the future, which is exactly the way news always works."

"If China keeps buying beans from us everyday, it may be hard for Brazil to come here and even find any left on our shelves," adds Marketing Talk frequent contributor Buckley_HF.

Though China has, at least in the last week, boosted the frequency and size of U.S. soybean buys, domestic supply isn't yet an issue, and that may not change, says Don Roose, grain trader and analyst with U.S. Commodities in West Des Moines, Iowa.

"China's driving everything. What you're looking for is the day when China announces they've got reserve stocks of 3 to 4 million metric tons to sell and put it into the market," he says. "We think we're getting to demand destruction now. The corn basis is higher."

Right now, the biggest sign Roose sees that there's not another short supply-driven soybean price spike on the near horizon is basis levels. The basis for soybeans on Friday morning, for example, was 32 cents/bushel weaker in Des Moines. On the contrary, cash corn basis levels were above 50 cents/bushel higher in Cedar Rapids, Iowa, on Friday.

"I will back up and say that soybeans haven't done the final phase of rationing. That's when old-crop basis is just on fire," Roose says. "We're not doing that yet."

And, if Brazil does start to import U.S. soybeans, it will be to cover domestic crushing needs for the livestock sector, not to supplement a tight export supply. Though some say it would be cheaper and easier for Brazil to import meal beans from Argentina, that may not be an option.

"It's not like there are zero beans. When it's profitable, they'll import our soybeans," Roose says. "Could we see some beans imported back to Brazil to crush? That's possible. Would they import beans to their ports and export them again? No. It'd be for crushing. It's just a tight situation. The Argentine crop is worse."

Then, there's the potential for more soybeans this spring in the U.S. After demand started flowering around 2 weeks ago, some farmers discussed ways they could possibly grow more soybeans, especially those in the wheat belt where that crop is already advancing well ahead of schedule, allowing for potential double-cropping. Roose says the latest market upswing in the soybean trade could buy as many as 3 million more soybean acres by the time USDA issues its next acreage estimate at the end of June. Until then, it cuold be a good time to take advantage of current prices.

"In a free enterprise system around the world, you're going to flex to these acres," Roose says. "It's that Brazil oversold their supply. At these prices, maybe the U.S. farmer should do the same."


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