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Corn+Soybean Digest


Bargain Basement Prices The Japanese yen soared 15% during the third quarter of 1999 as economic data showed our vital trading partner's economy pulling out of the longest recession since World War II.

The yen, which traded as low as 145/dollar in the third quarter of 1998, rallied to 105 yen/dollar in late September of this year. The table below shows the huge swing this has made in the cost of U.S. farm products.

With the weakness in the U.S. dollar, international buyers are purchasing our commodities as if there were a fall fire sale, with discounts of 20-33% from year-ago levels. Ironically, as long as the yen continues to rally, buyers will purchase hand to mouth.

The first hint the dollar has bottomed and the yen has peaked in value will lead to massive export bookings to take advantage of the lowest international prices available in decades.

The yen's rally is a good indicator that the economies of Japan - and many of the major corn, soybean and meat buyers in Southeast Asia - have begun to improve. This suggests that demand for farm products is improving and that demand in 2000 may be higher than earlier forecasts predicted.

In fundamental analysis, we're always evaluating supply and demand. U.S. soybean farmers and most traders are almost always focused on supply. During the summer, USDA and over a dozen private companies make monthly crop production (supply) forecasts. Generally, those supply changes are easy to measure and observe, while demand forecasts are elusive and hard to evaluate until after consumption has occurred.

Crude oil prices within the last year are a good example. The drop in production by OPEC was designed to improve prices from $9 to $16/barrel. Instead, prices climbed to over $25 as Asian and Latin American economies improved and demand increased.

Here's why I believe the soybean market is entering a demand-driven rally:

* User inventories are low as buyers wait to buy at even lower prices in the future.

* Buyers are ignoring the current record export and domestic usage pace. They ignore this strong demand as they focus on the large U.S. soybean crop and the potential for additional cheap supplies from South America that will be available in three to six months.

* Traders' attitudes remain bearish. Most strategies are to sell rallies, not buy dips.

* The alignment of the futures market is changing from a carrying charge to an inverted market in which the prices for nearby soybeans are higher than the bids out 30, 60 or 90 days later.

If we're entering a demand-driven market, look for a gradual climb in soybean prices into the spring and summer of 2000. This will likely provide better old- and new-crop pricing opportunities.

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