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Corn+Soybean Digest

Global Oilseed Fundamentals Turn More Positive

There is some light at the end of the price-plagued tunnel for soybeans. The worst demand news is probably behind us.

In short, the Asian financial meltdown may have bottomed, and soybean demand may start a slow recovery.

But to better understand the why behind this gut wrencher, let's take a look at the factors that took a sledge hammer to world soybean prices.

Until 1994, the economies of Japan and a group of Southeast Asian nations called the Asian Tigers came on like gangbusters. Their improved standards of living strongly signaled an increasing food demand. And U.S. farmers were challenged to turn up the burners on their production capacities - or lose out to worldwide competitors.

Then crap hit the economic fan. The bubble burst and the Asian Tiger got a big-time toothache. Stock and currency prices plunged lower in chaotic market conditions in the spring of 1998.

Price declines continued into August, when stock and currency markets in Japan, South Korea, Thailand and Indonesia plunged to 10- to 20-year lows. Demand for farm products also slowed as living standards declined and per capita meat consumption dropped.

This reversal in demand came after 20 years of continued strong growth. Meanwhile, on the supply side, South American farmers harvested a near-record crop. And last fall, U.S. soybean farmers harvested the largest crop ever. It was this combination of lower export demand and big oilseed and grain crops that dropped U.S. ag commodity prices to five- to 30-year lows.

We now believe, however, that the worst demand news is behind us. A monthly chart of the Japanese yen shows a large rally into 1994 and the hard down move into August 1998. Also, the chart represents the overall economic conditions and outlook for Japan. And it's one of the best barometers of economic conditions in all of Southeast Asia.

Note that the yen turned lower in 1994, even as the news and projections for Japan and all of Southeast Asia remained very bullish. The downturn in the currency and stock market was an accurate lead indicator of the Japanese and Southeast Asian economies.

Now the opposite has occurred. The Japanese, Korean and other leading Southeast Asian stock and currency markets have turned sharply higher from the August lows. They're in the process of posting impressive yearly price reversals.

The news and projections, however, are all still very negative. But if the currency markets and stock indexes are again good lead indicators of the overall direction of the economy in that region of the world, then the worst is behind us.

Slowly improving economies with higher standards of living and increased meat consumption would be great news for U.S. meat, grain and oilseed producers.

What you should watch for: Improving global stock prices and greater international trade can quickly gobble up excess global grain and oilseed production. Stay disciplined and use price rallies into this spring and summer to get 1998 crops sold.

Even with the big yield that most producers had this year, any kind of futures market rally will quickly take prices up into the profit zone.

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