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Soybeans: Two worlds divided

Soybeans: Two worlds divided

Soybeans continue to act as two worlds divided. You have an insanely tight front end that could still be grossly "undervalued" offset by what looks to be one of the most "overvalued" markets in years...NOV14 & NOV15 soybeans! The question nearby is: Can we actually ration demand enough to keep the US from being SOLD OUT??? I am not so sure.

 Some very good sources are already starting to talk about a soybean carry south of 125 million bushels, maybe even south of 100 million bushels. If this is the case, beans may have some more work to do to the upside.  As for now I am keeping my $13.55 and $13.72 target in place.  

We know there will obviously be Chinese cancelations, but the question is when and to what degree?  Remember, last year the cancelations came early, but also remember the Chinese had purchased a smaller number of US beans up front, made some cancelations, then shifted to South American purchase. Once they realized the South American market couldn't fulfill the orders in a timely fashion they came back to the U.S. This time around the Chinese have decided to front load their purchases by buying a larger number of U.S. soybeans.  In response the Brazilians are begging the Chinese to make  purchases, saying they have all of their problems figured out and can fulfill the orders.  

The question is: Will the Chinese bite on the rhetoric or will they actually wait this year until the bushels from Brazil starting hitting their docks before they cancel the additional U.S. cargoes?  I am telling you now that if the Chinese don't start making cancelations soon and Brazil runs into any type of early exporting problems, soybean prices have to travel a lot higher in order to ration demand. But before you get yourself insanely bulled-up, just keep in mind last year the early beans in Brazil were going to help replenish their domestic supplies, which was cause for some of the export delay.

I suspect this year the early beans will head straight to the exporters to expedite the process. As for 2014/15 soy prices, the story remains the same. Without some type of major weather hiccup we are looking at 15-18 million more metric tons of production out of South America and NEW record soy acres going in the ground here in the U.S. (my guess, 4-6 million more acres than last year). Moral of the story, if the weather cooperates, which is a big if, supply will over run demand like "Grant took Richmond." We will go from an insanely tight supply pipeline to swimming in beans quicker than you can blink an eye. Make sure you are understanding the game and the rules right now, they could change in a real hurry.  CLICK HERE for my daily market comments.

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