Long-term Perspective on New-Crop Soybeans

May 15th, 2009 Posted in Uncategorized

Let's talk Soybeans. New crop soybeans, which begin with the November futures.

November Soybeans (SX9) have rallied about $2.00/bushel since the beginning of March. Most of this rally, in my opinion, has been due to the effects on old-crop Soybeans caused by decreased supply out of Argentina and hence, increased demand for US soybeans from such sources as China. As old-crop has rallied, so has new crop. Though not to the same extent as old-crop, evidenced in the widening spread of SN9 vs. SX9.

Ok, projected ending stocks for the '08-'09 crop year are thin, no doubt. As the top-line number for supply for the '09-'10 crop year, we'll be beginning the new crop year without much room for error when it comes to production. Given.

However, soybean prices have rallied and corn planting is lagging. Might this be a scenario where there's a late-planting window shift to beans where possible? We have a ton of days ahead of us, and therein is one of the largest variables with respect to production -- the weather.

One variable that has been taken care of so far is the seed quality. Mr. Trey Koger, soybean specialist with the Mississippi State University Extension Service, was recently quoted in a trade magazine as saying "Overall seed quality for this year's crop is outstanding." (Cotton Farming, May 2009, One Grower Publishing, LLC) The article continues on to say that germination rates and vigor are excellent. So, it appears that the crop should be off to as good a start as might be hoped for by a producer.

Hence, my thoughts are to look for a shorting opportunity in this souped-up market. First let's look at the seasonal tendency:

This graphic is a little messy, but bottom-line it appears that there are about three rallies and pull-backs into July - and then a considerable break. The more-recent 5-yr. pattern shows a more stable upswing beginning April and ending July.

But where might the ultimate upswing end? Good question. I don't know. But here's what I see as potential zones for the market to fall from:

The top graphic is a daily of SX9. There's a chance the SX9 could stop here at the 200MA, around $9.85ish. It may also stop a little bit higher at the January highs of $10.45ish.

The "shoot for the stars" number is found in the lower graphic. Similar to the CTZ9 chart I posted recently, the SX9 has formed a W bottom. If it plays out according to the textbooks, the upside target in my opinion comes in around the $12.80 area.

So what am I saying? Do I think I can get away with giving you a $3.00 range for a high in SX9 and then tell you to get short at your own risk? No. What I am doing is laying a foundation for a thought process that has a long-term short bias in this presently bullish market. This market, as had the Cotton market on the upside, is on my radar. Now it's on your's, too. I'll keep you updated on my thoughts about it as time goes on, and you'll be the second to know as soon as I think the timing is right to act.

Contact me if you have any questions or wish to open an account to put into practice some of the things I discuss.

Bob // 1.800.388.0998 // 1.312.987.2053