Nogstradamus: The Future For Soybeans

The overnight session saw further erosion of nearby premiums for soybeans, whilst corn and wheat traded in a fairly narrow range.

August beans go off the board today, and often that means that anything goes and wild fluctuations can occur. September beans now only offer something like a 40c premium over new crop November.

Whilst I still subscribe to the idea of a possible technical tight squeeze towards the end of the September contract life, beyond that things have got to be bearish for beans.

Record production in the US could easily be followed by record output from South America too, a quick look at the price of beans relative to corn and wheat tells you all you need to know about what farmers planting intentions are likely to be in Brazil and Argentina this autumn.

A situation not unlike that of wheat plantings two years ago. This season it will be soybeans getting planted in the backyards of Buenos Aires and São Paulo.

The fact that beans are of course also a less fertiliser-hungry crop will not have escaped the attention of cash-strapped farmers in Argentina in particular. Nor will they have forgotten the export bans on wheat and corn in the last couple of years. Buoyed by $10 beans, and optimism that maybe they are finally going to get something in the way of tax concessions from the government, it's a no-brainer.

Plantings will be record large, you can rely on that, that only leaves Mother Nature to do her unreliable bit. The balance of probability suggests that another year of extreme drought in Argentina is unlikely, especially given the continued development of El Nino in the tropical Pacific.

Every drought has a sliver lining, and this one seems set to favour plenty of rain for South America this next season.

Whilst US old crop stocks are undoubtedly tight, probably tighter than the USDA report on Wednesday shows, US new crop ending stocks have probably been significantly under-estimated. Never the fastest to react to changing market conditions, it may be some months yet before the USDA start to accurately reflect the impact of sharply higher production in South America on 2009/10 exports and ending stocks.