Soybean traders are monitoring what most consider to be only a "short-covering" rally. The "technical" guru's will want to see this market first close above $9.30, then perhaps even above $9.55, before they give more serious consideration to a game-changing trend or major reversal.
From my perspective, the current change in price is simply the bears getting in and out of the hot-tub. In other words this is simply ALL bearish activity, there still aren't any bulls at this party. And with thoughts of the U.S. yield moving even higher and global soybean acreage continuing to increase there might not be many bulls show up for some time. Sure you might be seeing a few bears getting out of the tub, drying off, and heading back inside as the harvest weather forecast becomes a bit more cool and wet, but that's about it.
Bottom-line, I don't think the bears are voluntarily leaving this party anytime soon...there still appears to be a lot of meat left on the bone to the downside. If you're a bull, be careful thinking the bears have gone into hybernation. I'm thinking they might just be taking a little nap after getting their bellies full. Keep your eye on the weekend lows in IA, MN, NE and the Dakotas.
Why you need to monitor South America
Soybean traders are starting to focus more and more attention on South America. Brazil Ag attaché confirmed reports that Brazil is in fact in the midst of planting even more soybeans than last year (an additional +4%). Several sources show that Brazil will produce around 95.9 million metric tons this upcoming season compared to 86.6 million this past season. Understand, it's not all about increased production and weather related risk.
Traders are now starting to become a bit more nervous about the "geopolitical" risk coming out of South America. Problems in Argentina continue as the economy remains stagnant, the peso continues to plummet, and inflation continues to soar. In fact many inside the country believe the inflation rate will reach 40% in 2014. U.S. dollars are drying up in the country and becoming increasingly more scarce as the price of soybeans continue to fall.
Remember, Argentina's main export and its principal source for U.S. dollars is soy, a product that's plunged by nearly 35% in just the past 90 days. The cheaper prices along with the massive devaluation in the peso has prompted many farmers to sit on their remaining bushels which is now only exasperating the problems inside the Argentine border. Brazil has also reached a major fork in the road. This Sunday, Brazilians from across their vast nation will go to the polls to cast their deciding vote. Many are calling this a defining moment in Brazil politics (more on this story towards the bottom of the report).