China and Brazil take control of the soybean market

China and Brazil take control of the soybean market

Soybean bulls were happy to see China, the world’s top soybean importer, sign a commitment letter to buy 13.18 million metric tons. This was obviously a welcomed event, especially when you consider last year the Chinese delegation agreed to buy just 4.8 million tons. Unfortunately, I don't think it came a as huge surprise. There was talk all week that the Chinese were going to try and make a bold statement, not only about the stability of their own economy but also the fact they were willing to advance trade with the U.S.. Keep in mind, they signed an big agreement on Wednesday with Boeing for several more jets.

The bulls were also happy to see an improvement in weekly export sales, the problem is we're still down over -30% compared to last year at this time. From a technical perspective the chart really hasn't improved much as we continue to trade near the bottom of the barrel. There's talk of better than expected yields coming out of the fields here in the U.S. and another round of record acreage about to be planted in South America. Throw on top the overall negativity surrounding the commodity space and some traders are saying we could eventually grind lower and test the 2009 lows down around $7.75 per bushel. I obviously think that's a bit of an extreme, but I've also learned to never say never.

I personally think it will be tough to get soybeans sub-$8 as long as global demand continues to hang in there, but then again, who was able to see sub-$50 crude oil in July 2014 when prices were still above $100 per barrel?

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Why you need to pay attention to the Brazilian real

After tumbling to a fresh new low of R$4.2478 vs. the dollar, the Brazilian currency turned around yesterday and posted its largest rally in seven years after the governor of the central bank said he was willing to use “all instruments” available to policymakers to stem the currency’s recent slide.

What you need to understand is that because of the recent slide in their currency, Brazilian producers earlier this week were able to sell soybeans for more than $13 per bushel. There's been speculation by some FX experts that the Brazilian currency could eventually slide to a 5:1 ratio to the U.S. dollar, which might  allow Brazilian producer to profitably farm soybeans clear down to the $6 level vs. the board in Chicago. This is why so many analyst are concerned about how things are going to play out in Brazil.

I understand what the analyst are saying, but I'm of the belief if the Brazilian currency is allowed to remain in a free fall, their entire country may implode and cause massive shock waves across their nation that directly impacts the farmer and his ability or appetite to expand or continue with current production. In other words, I think there would be some massive bullish headlines associated or hidden within the meltdown inside Brazil. It is definitely something you want to fully understand and continue to monitor!

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