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Soybean Market Vulnerable


Uncertainty about South American supplies and strong Chinese demand have continued to drive soybean prices up, despite fast harvest progress in Brazil and the start of Argentina’s harvest. Estimates of production are still falling as a result of crop problems in southern Brazil. Brazilian analyst AgroConsult cited worse-than-expected yields in Rio Grande do Sul last week when it lowered its estimate of Brazil’s soybean crop by 3 million metric tons (mmt) to 67.1 mmt.

USDA most recently estimated Brazil’s crop at 68.5 mmt, slightly below the official estimate from Brazil’s agriculture ministry. CONAB, the supply arm of the ag ministry put production at 68.75 mmt.

Strikes by Argentine dockworkers and truckers have added to uncertainty about the availability of South American soybeans.

Dockworkers at Argentina’s largest soy export port of Rosario on Thursday suspended a 12-day-old strike for 10 days to allow negotiations with exporters, but exporters are anticipating more strikes as workers push for large wage increases to keep pace with the country’s double-digit inflation.

Argentine truckers announced an indefinite strike on Monday as they seek higher transportation rates. Strikes such as these, however, would likely have to continue for at least three weeks before they would cause any buyers to switch purchases to U.S. origin.

Pressure on prices from new-crop supplies should increase in the near term despite crop losses and transportation disruptions.

Brazilian farmers have been quick to sell this year’s crop due to favorable prices. Consultant Celeres estimates producers have sold 62% of their 2011-2012 soybean crop, up from 57% at the same time a year ago and well ahead of the five-year average of 49%.

Brazil’s harvest has now passed the halfway point, with Brazilian consultant Safras & Mercado estimating progress at 55% as of Friday, up from 46% a week earlier and ahead of the five-year average of 43%.

In the top growing state of Mato Grosso, 86% of the crop was already out of the field compared with a five-year average of 71% for this time of year. Harvest is just getting underway, however, in the drought-stricken southern soybean state of Rio Grande do Sul, where only 6% of the crop had been picked as of Friday.

Harvest has started slowly in Argentina due to disruptions from heavy rains that have hit the country’s growing belt after the drought that stressed the crop in December and January. "Rain over the last seven days interrupted harvesting in much of the central soy belt," the Buenos Aires grain exchange said in its weekly crop report on Thursday.

Soybean futures, meanwhile, are looking dangerously overbought and may be poised for a significant downturn with commodity funds now holding a big long position in the market.

Friday’s supplemental Commitments of Traders Report from the Commodity Futures Trading Commission showed the net long position held by "large speculators" (mostly managed commodity funds) in soybean futures/options as of March 13 was the largest since February of 2011.

Given the further buying that occurred on Wednesday and Thursday of last week, it is quite possible the large speculator long position has already surpassed the record high set back in November of 2010 when strong demand from China was also dominating the market.

Position evening ahead of USDA’s annual Prospective Plantings report and quarterly Grains Stocks report, which are due out on March 30 could easily be the catalyst for a significant downturn in soybean prices.


Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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