December 18, 2009
First up, I have to correct myself…
In my December 9th newsletter, on a Soybean Oil chart, I made the following statement: “Excepting last year’s craziness, and what you see here, Soybean Oil has spent exactly 3 days over 40 cents in its entire 40 year history of futures trading”…I suppose I was in a hurry to finish the newsletter and didn’t double check my charts but that statement was quite incorrect…Aside from the fact Soybean Oil futures have been trading for much more than 40 years, in 1974 this market spent roughly 5 months trading above 40 cents, at one point actually briefly touching the 50 cent mark.
That being said, I still maintain that there is no way we are going to see Soybeans and Soybean Oil staying at their current historically high levels…and still consider both of these markets to be MAJOR shorting opportunities…
For one…as I’ve said before, there is no shortage of soybeans…as can be noted on the following graph:
Add to this the following quote from ADM’s grains research department: “This (2nd Quarter forward) is when a South American crop that may be in excess of 125 million tons will start pouring on to the world market. This is expected to push world ending stocks to their 2nd highest level ever at the end of 2009/10. A return of normal monsoons in India and more favorable crop weather in northern China next summer could push 2010/11 ending stocks even higher.”
There is an old commodity adage that “big crops tend to get bigger”. Brazil and Argentina have record soybean acreage in the ground right now and there is nothing that says their crops can’t be even bigger than is anticipated by the graph above…and ending stocks therefore could still be underestimated…
Sell the July
Between now and next July, we will have seen the entire South American crop come to market, we will know how MUCH acreage has gone into Soybeans in the Northern Hemisphere (including the USA, China and India), and with Soybeans still over $10.00 a bushel, I cannot imagine the news being anything other than massive increases in production in any country where this crop can be grown. These ARE the futures markets and as I believe next year’s headlines will be “Soybean SURPLUSES”, I fully expect this market to be trading at much lower levels long before the idea of surpluses becomes reality, so with this in mind I firmly believe the move down could begin, in earnest, any given day now…Yes, I have been feeling this way for some time now but the last few weeks’ 300 point ($3000 per futures contract) upswing in the Dollar and corresponding $110 ($11,000 per contract) downturn in Gold may be signaling bearish action in other commodity markets is about to begin…Soybeans and Soybean Oil did finish the week by taking out the lows for the last month in one blow yesterday, then closed lower today as well…Meaningless? Who knows? But every move starts somewhere…
I’ve lately seen a fair amount of press about Silver “catching up with gold”, often with references to Silver “having not yet even taken out its 1980 highs of $50 an ounce!”, the idea being that Silver, if inflation adjusted, is therefore tremendously undervalued at $17 and has the “potential to exceed $100 an ounce”…I think this sort of talk is nonsense and wouldn’t be at all surprised to see this market back under $10…That $50 high was the artificial result of an attempted corner by the Hunt brothers and is not, I believe, even remotely connected to the real market value of Silver.
Give me a call if you’re interested…