Thursday Morning Thoughts - Soybeans Overvalued?

The overnight grains are sharply lower, taking their cue from a turnaround in the Chinese markets. report that the Chinese government have upped the interest rate on its three-month bills overnight in an attempt to reign in inflation.

There are some fairly obvious implications for soybean demand here, as it's been Chinese buying that has singlehandedly supported the market recently.

That makes this afternoon's weekly export sales report from the USDA particularly interesting. The trade is expecting sales of 600-850,000 MT, something significantly lower, coupled with a marked absence of China might get the market a little spooked. Particularly as there's been quite a lot of talk that China has overbought and that there could be some cancellations in the offing.

Things are looking pretty rosy in South America, and there's some huge soybean crops on the way down there. Potentially record-breaking production from Brazil, Argentina and even Paraguay. Throw in the US and that gives us all-time highs from each of the top four exporting nations in the world for 2009/10.

Ten dollar beans seem rather expensive when you look at it like that. Remember that the Jan 10 CBOT soybean future gained 5.5% during the course of 2009. Against that March 10 corn fell more than 11% and March 10 wheat almost 10%.

That makes soybeans look the most over-valued of the grains complex. I'd rather buy into corn of wheat if you put a gun to my head, at least you can make out some sort of bullish story for either of those if you try hard enough.