December 28, 2012
Still Shorting the Soybean Complex
Winding down on a year, and a Friday afternoon here…doing some idle scanning of the news today, I realized I have been reading the same thing, over and over, for some time now regarding the Soybean market. I also realized the phrasing I keep repeatedly seeing is almost identical to the sort of “logic” I have witnessed in countless BEAR markets during the past 32 years. Though I find it endlessly amazing how bear markets are seemingly always accompanied by bullish fundamental analysis, I also understand this is simply the way the markets work…which could be the subject for an entire newsletter that I will leave for another day…
At any rate, check out these Soybean news excerpts pulled from the last week or so…and how the “export demand” theme just gets beat to death…and will continue to be, I believe, ALL the way down as Beans trade sharply lower in the coming 6-9 months….
Dec. 20 – “U.S. Soybeans are sharply lower….after China cancelled a huge export purchase for the second time this week…..Still, traders note that the pace of export sales for the year remains well above USDA projections. With global supplies still tight currently, some traders say prices must remain high enough to discourage demand.”
Dec. 24 – “Despite the bearish export news last week, traders said demand is still relatively strong. U.S. soybean export sales remain well above the government’s projected pace despite two huge cancellations by China this week, analysts noted”.
Dec. 26 – “The soybean market is coming back from Christmas break with good fundamental support”. “Firm cash-market prices will also support futures as exporters and domestic soybean processors compete for a limited amount of available U.S. supplies”.
Dec. 28 – “Strong domestic and export demand continue to provide solid fundamental support for bean prices. Stout U.S. export demand, particularly from China, has been a key driver of prior advances in Soybeans”. “
I have to tell you, I honestly cannot count the number of agricultural bear markets in which I have seen that line, “the pace of export sales for the year remains well above USDA projections”…while prices just keep tumbling relentlessly lower.
I am still short Corn and Wheat (which both made new 6 month lows this week), and the Soybean complex, but my sense is the next big downside acceleration is going to come from the Beans. Maybe it’s stupid, but we have already seen almost a $4 break in this supposed bull market, which was NOT supposed to have happened…and I’ve just seen that stuff about “solid fundamental support” too many times recently to not think all the “bullish fundamentals” have long since been accounted for in prices…and that what HASN’T been accounted for is a whole nation of farmers who are still sitting on product they need to sell, and thought they would be selling at higher prices…and somewhere soon, all that selling will be coming to the market…Combine this with my belief buyers have long since been scared into covering the bulk of their needs for the year…and the resulting phase we should then see is: a relative vacuum of buying being met by a two to three month avalanche of selling…which, in my mind, could EASILY lead to $10-$11 Soybeans…or worse.
I CONTINUE TO RECOMMEND EITHER SHORT FUTURES OR THE PURCHASE OF PUTS IN SOYBEANS AND SOYBEAN MEAL.
I’ll follow with a few quick option possibilities…Please give me a call if you are interested…
Happy New Year all…I’m calling next year, “Lucky 13”.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Soybean Meal puts