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Know the risk on new-crop soybeans

Know the risk on new-crop soybeans

Soybean bulls were excited to see another round of Chinese purchases announced yesterday. In fact Oil World is now estimating China’s 2013/14 soybean imports at a new record 70.0 MMTs, essentially 1 MMT more than the USDA's current estimate. The trade still remains decisively divided between the bullishness of the old-crop and the bearishness of the new-crop.

Producers looking to plant more soybean acres in 2014 need to make certain they clearly understand the downside risk that could be associated with a potential 300+ million carry in U.S. soy ending stocks. I agree with the fact the numbers are definitely telling us to plant more soybeans than corn right now. Just make sure if you're making those plans, buying the seed and moving forward with these intentions, that you are hedging or locking in a good chunk of your estimated production, as well.  

If you look back in history (2004, 2006 and 2008), the American farmer certainly responded to strength of soybeans over corn by planting more acres, but by the time harvest arrived, the price appreciation had greatly diminished. My point is: NOV14 soybeans above $11.70 work for most producers, but if South America continues to enjoy favorable weather conditions and U.S. growers roll with more soybean acres, by the time U.S. harvest rolls around, soy prices could easily be $2 lower.

Remember, in 2004 prices tumbled from a high of $10 to about $5 by November of that year.  In 2008 prices hit a high of $16.63 only to fall to $7.67^2 by December. Don't think for a moment a $2 price reduction in the backend of this market can't happen. Nothing profound, but I suspect the USDA report today will be bullish for old-crop soybeans on better demand, while being somewhat bearish the new-crop on larger South American supply estimates...adjust accordingly! 

Exports - Currently the USDA has exports estimated at 1.450 billion bushels vs. 1.370 billion in the Sept report. Talks are this number could once again be pushed higher by perhaps 10-40 million bushels. 

Crush - Currently the USDA has the domestic crush estimated at 1.685 billion bushels vs. 1.655 billion in the previous Sept. report. The trade isn't looking for much change in this number.

South American Production - Could obviously be pushed higher on good growing conditions and more soybean acres going in the ground. The odds of Argentina's production numbers moving higher seem to be a little better than Brazil's being bumped higher. Though both ultimately look to be heading that direction. Talk is that Argentines production could be bumped higher by 2 million metric tons and Brazil's by close to 1 million.  

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