How high can we go in the Soybean Market?

[giolucas]

As the public starts to jump in, there is always the possibility of the BIG BOYS(FUNDS) to bring the market down and whipsaw the crap out  of the market.  REGARDLESS OF THE FUNDAMENTALS.  Maybe the market goes limit up on Monday night but will it stay there?  My opinion is that we will hit limit and then trade from there.  I unfortunately got out of my position on Friday and took my profit.  But I cannot focus on what I did on Friday, now I want to jump back in as a buyer, now I need to find out at what price I do jump in.  

Would you buy at $ 12.05 if it goes limit or would you wait for a break?  What are your thoughts?  

[kraft-t]

It's so easy to cross that line between marketer and speculator. Not that there is any thing wrong with either exercise, but it might be wise to consider what your objective is. Whether it is to find an opportunity to make profitable sales of your own production or to harvest profits that the speculative market may offer.

The sales opportunities in the next few days may be significant in themselves in that we can harvest great

profits for this year and the next. I think that is where my focus will be currently.

[Palouser]

You say. "there is always the possibility of the BIG BOYS(FUNDS) to bring the market down and whipsaw the crap out  of the market.  REGARDLESS OF THE FUNDAMENTALS."

I don't believe that for a second. Not if production is short and there is similar global demand trends as before, and that WILL be the case until it goes absolutely parabolic. Could there be wide swings in a daily interval, or even a few days? Yes. But, if we are short soy, we are short soy. The end user can figure that out. They will cover their needs in most cases because they will have no real choice. The use that it is going for can't simply be ended o[r] abandoned. If one can be knocked out of the game on a few days volatility then they are speculating in a highly leveraged way - and that's their problem.

If corn is also a supply issue then a shortfall in soy would be a bullet proof bull to ride. As for how far and how long - those are the questions, but it will be something like '08 - and that was a supply issue, not speculator caused. But like ambulance chasers, a train wreck attracts speculators and speculating like flies to cow pies.

[GoredHusker]

In one of the monthly supply and demand reports in 2008, USDA pegged corn carryout at 717 million bushels.  The final carryout came in at over 1.6 billion.  I continue to hear all the time how grain demand is inelastic.  If this is the case, then how did they miss the mark by so much?  What would be the point of demand rationing if demand is inelastic? 

2008 and 2010 have a lot in common.  In both cases, the basis is/was horrible.  This is because another thing these two years have in common is that both were a direct result of excessive speculation.  If you want to go back to a true demand driven rally, then you'd have to go back to spring of 1996.  In this market, the futures for corn went over $5.00.  The big difference between 1996 and 2008/2010 is the fact that basis was very strong in 1996.  This is the difference between a speculator driven market and a true demand driven market.  This might also be the reason that the Dec. 08 corn contract fell over $5.00 a bushel before it expired.  When the funds decide they want out, they get out. 

[Palouser]

I think you are misreading the sequence of events. 

Corn is probably the most elastic of the grains because of the non food proportion of the crop. Wheat , for all practical purposes is almost inelastic because it is generally a food, or in a feed in areas where corn is not as suited for production as corn and doesn't have as much competition (as in Russia). But corn and other grains have to be read in their global context also. The fact that we have a relevant abundance of wheat in N America has little bearing if the global use is greater than production. Same for corn, although probably not to the same extent, due to the ethanol component. But certainly for beans.

Whether the current USDA figures are accurate in the end, it was the report that sparked the current rally, not speculation (yes, there has been an argument for some time that supplies did not seem to be in the cards, for specific reasons). Speculation can run it up, but it is supply concerns that are the initial spark. Show me a year in which an abundance was predicted, and the conditions agreed with that assessment, when speculation made prices take off with no storyline that supplies or demand were going to be a problem. Whether later there WERE supply problems and the price took off is immaterial. We are currently looking at global coarse grain consumption greater than production.

Speculation is a reaction, not a cause, in relation to major price moves over time.

[Palouser]

I didn't directly address your question of basis. Only the direction of the markets.

My point is that supply and demand are the major determiners of futures prices direction. Futures prices do not necessarily reflect closely the cash value of physical grain. Meaning futures don't reflect much of anything sometimes other than general direction. They certainly don't determine the price of physical, though they can affect them on a daily basis. There is a sympathetic connection (otherwise the CBOT would be entirely in Vegas).  My wheat market (soft wheat) sometimes moves counter to the CBOT, sometimes with, but usually only in a slight way. Yet my class is the most closely related to SRW.

The biggest drawback to having a futures market insensitive to physical is the innefficency  that makes producer hedging too costly.

[GoredHusker]

The World ending stocks for corn in 2008 and 2009 were two of the highest this decade.  2003/04 were the lowest this decade.  Do we really need to discuss where the price of corn was in 2003/04 and compare it to 2008? 

[protrader]

This will be the year we see $6 and $16 if any.

I feel that right now, the soybean price is not an accurate representation of what it will take to compete for acres.  Generally, Soybean price should hover around 2.5-2.9(x) the nearest future price of corn.  Currently we are seeing a much bigger spread than this and I feel that, especially with the advent of corn varieties that can successfully not be rotated, beans will have to reach this level to compete for acres.

[Palouser]

Yes, let's talk about it. You are mischaracterising the corn inventory levels of 2008-9. There were at least 4 years THIS DECADE that had higher carry overs in the US. This is not taking into account global matters, but corn IS more parochial than wheat in that ethanol and production are centered in N America.

http://www.agmanager.info/livestock/marketing/graphs/Crops/Corn/EndStocks.htm

Also, there is a fundamental difference between 2003 and 2008 in corn. 2003 was part of the fundamental pattern of taking grain production and inventories for granted, and as a result the market didn't react in time to spur production - and certainly speculation didn't jump into the fray as it has since. In 2008 two things happened in the corn world, specifically the US. There was an explosion of usage as hundreds of millions of ethanol plants came on line AND a direct relationship to a spike in energy prices to unprecedented heights as developing countries, led by China, were scouring the world to meet exploding energy needs. I believe that was also a drought year for the EU.

[GoredHusker]

I didn't mischaracterise anything.  I stated that World carryout levels in 08/09.  I didn't realize that the United States made up the entire carryout for corn.  You would think for markets that rise and weren't actually led by speculation would have caused prices higher in 2003 than in 2008.  Like you said, there was a drought in Europe.  Inventory levels of grains were low, yet prices were a fraction in 2003 of the speculation led rally in 2008.  I stand by my point.  Speculation does cause rallies.  They don't just jump on for the ride.  The only difference between 2003 and 2008 in terms of speculation is that index funds hadn't joined the party yet.  In 2003, there were other avenues where decent returns could be made.  Therefore, speculation wasn't running rampant within the commodity markets.  Once interest rates return and other opportunities return, the spec. money will leave these markets high and dry.