Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Soybeans: The New Corn

Commodities / Agricultural Commodities Apr 13, 2012 - 05:51 AM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleMarkets are intriguing due to their constantly changing character. New leadership constantly evolves. In equity markets, that tendency is always pushed to an extreme. A maker of electronic toys is today considered the most valuable company. Nonsensical forecasts of a $1,000 share price have even appeared. A company involved in the social networking fad is praised for a billion-dollar acquisition of a company with no revenues, making the internet bubble look like value investing.


Markets may strive for efficiency, but without adult supervision of participants that process can become distorted. For example, theories of the efficiency of markets all assume rational policy making at the central bank. No one ever expected that the monetary policy of the largest economy in the world would be hijacked by academics practicing Keynesian sorcery.

Where the obvious failure of Keynesian academics is fully demonstrated is in the production of real goods. Quantitative easing cannot produce a single barrel of oil or one bushel of grains. Those markets, due to their global nature, are beyond reach of the parochial views and archaic beliefs of Keynesian mysticism. Evidence of the complete inadequacy of this group's efforts can be found in the chart below of the price of soybeans. Federal Reserve can do all the QEs it wants, but that will not produce one single soybean. As apparent in the chart, the price of soybeans seems poised to move to new high territory. Soybeans are likely to become the new corn for Agri-Food producers and investors.

Soybeans are not produced in a factory, and for that reason production is largely unaffected by monetary policy. Soybeans are grown in the ground by farmers. They do that activity one time a year. Weather has reduced grain harvests in South America this year, and QE cannot change that immutable fact, or that no more beans will be harvested in South America till this time next year.

When last we visited, the inadequate global supply of vegetable oils was our concern. Soybeans are one of those grains used to produce edible oils, as well as animal feed. Soybeans grow in a lateral band in the Northern Hemisphere running through Iowa and Illinois and a like band in the Southern Hemisphere. Those regions provide the best climate for soybean sex.

Soybeans are in rather short supply this year. That short supply situation is likely to persist until such time as the price of soybeans rises to a level significantly above current levels. For the next year US$14 per bushel is quite likely to be the new floor for soybeans. Soybeans are likely to replace corn as the grain of excitement in the world of Agri-Foods.

Chart above is of the number of days of global consumption in the bins at the conclusion of the crop year ending as indicated in the graph. This Fall, prior to the harvest of the new crop, the world will have only a little more than 80 days of soybean consumption in storage. That level is far better than 2009, but ranks as one of the lowest supply levels in many years.

Below these macro numbers, the situation is more complex. China's inventory of soybeans is less than 70 days of consumption in storage, well below the global average. China imports almost 80% of that nation's soybean consumption. Chinese soybean imports are almost 30% of total global production. That number does not include that which is imported in the form of soybean oil or meal. Any increase in Chinese consumption of soybeans, as grain, oil, or meal, must be met by importing.

Situation this year is that the South American harvest was less than expected. Further, corn production is more profitable for farmers than soybeans at current prices. Farmers in the Northern Hemisphere are now starting the planting season. For the first time in three years the weather is supportive of that effort in North America. In the U.S., 7% of corn acreage has been planted versus an average of 2% at this time of the year. Illinois, an important corn state, is at 17% versus an average of 1%.

Farmers are going to fully plant corn. In North America, soybeans are planted after corn. Soybeans will be planted in that acreage that is left after the corn is in. In short, soybeans are going to be short acreage in North America this year. The Fall soybean harvest will not be as large as the world needs as a lot of corn is going to be planted.

In the Fall, after the harvest, corn should be far more abundant than at the present time while soybeans will continue in relatively tight supply. Note that China is long corn in reserves while short soybeans, and may import less corn than some forecast. That should mean that corn prices will move toward $5 in the U.S. and soybeans will move up from $14. Soybeans may indeed be the new corn. This situation can only exacerbate the situation in vegetable oils about which we previously talked. Those best situated to benefit from this situation are ADM, BG, and Wilmar International.

9th Agri-Food Commodities: An Investment Alternative, April 2012, is now available. This report, ~140 pages, is the definitive quarterly review of returns produces by Agri-Commodities versus U.S. and Chinese equities, U.S. government bonds, U.S. Treasury bills, and Gold. This edition begins the only major exploration of the Agri-Commodity component of commodity indices. Learn why your portfolio is simply inefficient without exposure to Agri-Commodities.

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To contract Ned or to learn more, use this link: www.agrifoodvalueview.com.

Copyright © 2012 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in