From the June 01, 2010 issue of Futures Magazine • Subscribe!

Grains offer long opportunity by thinking short

The grain complex has been pretty boring since the huge moves of 2008 as prices have steadily declined further after tanking from the mid-2008 peak. Anyone nostalgic for those glory days of beans in the teens is probably going to have to wait a while longer as slower demand and a near perfect spring planting season has bulls on the run.

If these fundamentals follow through, we can see prices of corn, wheat and soybeans at levels not seen since 2006.

What’s next for soybeans

Soybean futures reflected a significant speculative price premium throughout the spring. Traders argued an Argentine/Chinese trade dispute as a bullish reason to think China would buy more U.S. beans and force U.S. stocks into shortage status. Additionally, talk of early corn planting pulling acres from beans supported new crop prices with talk of potential tight supplies in 2010/11. However, the Allendale research staff was finding nearly the opposite to be true in every study completed and viewed the rally as a selling opportunity. China actually was canceling old crop purchases as rumors circulated of them buying. Based on the current pace of sales, we expect a 27 million bushel decline in export demand (see “Exports lagging”). However, offsetting a slowing export pace is the strong domestic soybean crush that is exceeding USDA’s forecast by 48 million bushels (see “Crushing last year’s pace”). Thus old crop soybean demand likely will be revised up, not by the bullish 50-75 million bushels that some were saying but only by 21 million bushels. This will equate to a stocks decline from 190 to 170 million bushels. Although this is a little tighter than thought, it is not a shortage and does not justify beans at $10.

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