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| Daily Jurojin - Monday, May 4, 2009 |
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Monday, May 4, 2009 Chinese demand boosts soybeansThe surge in the price of CBOT soybean futures shows no signs of stopping after contracts traded at a six month high to cap a week in which prices rejected fears over swine flu as traders focused on a contraction in supply at a time when demand from China is exploding.Traders favored the nearby May contract whose price reached $10.71 per pound for fears of a shortage in the remainder of this season's crop. But that didn't stop an explosion in the price of futures reflecting next year's crop, which also rose sharply. Many traders are talking openly about a $12.00 per pound label as demand from China exceeds the supply from the world's three largest growers. Argentina faces two problems. The Chinese are openly balking at Argentina's interventionist policy, instead preferring to buy from the U.S. and Brazil. Argentina's current crop is expected to be as much as 26% lower at 34 million tons from over 46 million in the previous year. And thanks to rising fertilizer costs, farmers added nutrients to this year's crop sparingly, which has resulted in lower yields. But the biggest factor remains the impact of the nation's worst drought in half a century, devastating farmers' incomes. Exports from Brazil are expected to lessen thanks to dry weather resulting in a four million ton shortfall to 57 million tons this season. While we know that the Chinese government's stimulus policy is positively affecting its infrastructure, it's altogether unclear why Chinese producers are sucking in record amounts of beans, which are being processed or crushed into vegetable oil and feed for farm animals. The 30% rise in first quarter Chinese demand has driven down stockpiles of the world's largest producer of soybeans at U.S. farms. The USDA now predicts the depletion to drive U.S. stockpiles to a five-year low. Meanwhile here in the US, farmers are mostly sitting idle as continued wet conditions and cool temperatures are seriously delaying planting and fieldwork. Farmers are starting to worry that the further the calendar gets into May the lower yields will be. It's vital that soybeans be planted in time otherwise the plants can miss the critical pod stage before the intense heat of summer sets in. The clock is ticking for farmers and they know it. If the rain and wet weather persists it could also ratchet up prices in near term contracts. Only time will tell! The explosive price action might simply be a factor of the supply squeeze impacting the nearby futures prices. Some analysts expect that planting intentions for the forthcoming season will help swell future crops and alleviate some of the pressure. That's why the six-month spread between the May and November contracts widened out this week to $1.30 from $1.00 earlier in the week. So will prices take a breather in soybeans anytime soon? Perhaps. But we have seen before the impact of Chinese encroachment on prices of many commodities from crude oil to corn. Such was the run up in prices in the space of the past five days, that it would be no surprise to see some liquidation, but we feel that would be another giant buying opportunity. Last week, a large speculative crowd added to the fundamental demand and for subscribers to our own Jurojin Weekly, it was highly profitable. In fact, by the time fresh buying was piling into the bean pit by Friday, they were meeting our own readers' sell orders to take profits of as much as 50 cents per contract. This evening, our council members will review the price action of the last week and make a decision on what to do next in this week's issue. At the center of the discussion will likely be whether or not there are more immediate gains to be had from grains or not. Stay tuned. The Supreme Council of the Secret Order of Jurojin |
