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Soybean futures: $9.50 or $5.50?

The latest price surge began with USDA’s Oct. 10 crop production report, which lowered its forecast of the U.S. soybean yield average to 34 bushels per acre, a 2.4 percent decline from the previous month.

The agency pegged total U.S. soybean production at 2.47 billion bushels, down 7 percent from the previous month and the lowest since 1996. Ending stocks were estimated at 130 million bushels, 5 million bushels lower than the previous month.

“What typically happens when you have really tight stocks is you have a weather-driven and trade-driven market,” Kruse noted.

It didn’t take long to prove this market fundamental. By the end of October, bullish news on weather and trade drove bean prices to $8.

Hot, dry weather and other problems in the Midwest were behind the lower production in the United States. In addition, there has been some speculation about a dry spell in Argentina, where planting has been completed.

On the trade front, “China has been importing soybean at a very strong pace which has caught a lot of attention,” Kruse said. “And in Brazil, there is some argument as to whether the region should allow GMOs or be GMO-free. There’s a port there that has closed because they’re trying to get a GMO-free certification.

“Both Japan and China have indicated they want the GMO-free certification,” noted Kruse, although China “could be using the issue to regulate imports.”

Ultimately price will ration demand for this year’s soybean crop and its anxious customers – China and domestic users. Kruse noted that on the U.S. side, “the cattle herd is already contracting despite record cattle prices, USDA says. So the numbers aren’t implying growth from there.”

With tight stocks, prices could spike up to $8.50, noted Kruse. “But it’s a price that’s not likely to be sustained unless we see a drought somewhere in South America. Now is not the time to get greedy. If you have a good price at $7, $7.50, sell some beans.

“Once the price gets over $7.50 and you’re still holding beans, you’re starting to speculate on the South American crop.”

The production potential of that region has a lot of weight in the market, Kruse noted. “Used to be when the United States had ending stocks in this range, we’d get beans in the $10 range. But in recent years, the relationship has changed, and it’s more $7 to $8. Brazil and Argentina love to respond to anything over $5.

“In fact, if there was speculation that their crops were doing extremely well down there, you could see a significant price move to the downside,” Kruse said. “Prices might get to $9, but it could just as easily go to $5.50.”

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