Oil Market Slump Stymies Beans
Bean may have trouble rallying and could see selling if outside markets don't stabilize.
Bryce Knorr
Published: Nov 16, 2008
In theory right now there isn't a real pressing reason why falling energy prices should have so much sway over what soybeans do. Hopes for a biodiesel boom, which fueled buying on the way up, have pretty much been scraped.
Nonetheless, the selling in energy is symptomatic of the problems facing beans. Some of the selling in crude oil is tied to weaker demand thanks to the slowing economy, reflected in the poor start to crush of the 2008 crop as traders fear cash-strapped consumers will eat less meat. But some of the selling in crude oil — and soybeans too — reflects their positions as surrogate investments. Those who bought oil and beans as a hedge against a weaker dollar are now dumping those positions as the greenback strengthens on safe haven buying.
As a result, beans could have trouble rallying — and may even face new selling — if outside markets don't stabilize. Otherwise, fundamentals for beans look decent. Weak crush notwithstanding, export demand remains very good, though sales did ease last week after a huge burst of Chinese buying. USDA last week maintained its carry estimate at 205 million bushels, a number that easily could be 40 million bushels too high.
There's also emerging concern about South American production. While weather is improving in Brazil, Argentina is turning dry and looks to stay that way this week at least. That may trim production despite the big increase in acreage there this year.
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