Will funds continue to push soybeans higher?

Will funds continue to push soybeans higher?

Soybeans, in my opinion, remain a two-headed monster, as they make new highs in the May contract! The USDA just released planted acreage at 81.5 million, obviously a NEW record. The data essentially show every single production state was either increasing or leaving soybean acres unchanged except for MO and OK where there was slight decline.  

I hate to sound pessimistic, but simple math shows you this type of planted acreage should equate to about 80.6 to 80.7 million harvested acres. If you use a national yield average of between 44 and 45 bushels per acre, we could quickly see ending stocks push north of 300 million bushels. Meaning, current price levels for new-crop soybeans would be too high and a drastic reduction of price could certainly be in the cards.  

I might be the odd man out on this, but I actually believe one saving grace might be the fact U.S. soybean acres move lower NOT higher.  I just think with the rally in corn prices, many of the guys that were going to make the switch to more beans are going to go ahead and roll the corn again. I also believe the delay in the wheat crop might make it tougher to get as many second-crop soybean acres in the ground.

We continue to sit at 50% sold/hedged and are waiting for new-crop prices to rally back up above $12.00 before making any additional sales. Producers have to recognizing the potential for the bullish troops to quickly retreat to there rears.  On the flip side, the old-crop remains impressive with the MAY14 contract posting new highs, and our most recent projection of $15.00 plus old-crop soybeans more of a reality. Keep in mind, US soybean stockpiles were reported at 992 million bushels, which was 1% below last year's level at this juncture. There might be some debate or questions raised against the fact "disappearance" for the quarter totaled 1.16 billion bushels, up 20%  from a year earlier.  

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Understanding Money-Flow and Rotation

I always talk about the flow of money, but I seldom go into any detail about the actual "rotation" and movement. This is certainly a phenomena we need to understand, especially when investors and money managers get nervous and start seeking safety in less expensive areas...in other words searching for true "VALUE." Keep in mind, investors have not only been uncertain about the geopolitical changes happening in the Black Sea region, but there is also some clear uncertainty in regard to Janet Yellen, the NEW Fed Chair of the world’s #1 economy; the shadow banking system in China; and the probability of higher short-term interest rates.

One can argue that the markets are always right and that over the course of time ALL money is eventually allocated efficiently – the concerns and problems however arise in the way we get there. As Josh Brown indicates in his daily blog, the "efficient market" isn’t a state of being – it’s a verb, a process. It doesn't always make sense, sometimes money chases "value”, sometimes it chases "performance"... and many times money is simply thrown in whatever direction has worked best the past few weeks.

In other words, “Repeat until broke” can often be the battle cry. With this being said, the "rotation" of money back into the grain markets might be as simple as money managers chasing "value" or more recently, the repeat until broken mentality. Regardless of why, we have certainly seen a massive rotation from the large spec and funds from record net short positions in wheat to now being long about 30,000 contracts. In corn, there has been a rotation from being short around -200,000 CBOT corn contracts to now being long somewhere over 270,000 contracts. I heard they increased their net long position by about 20,000 contracts in yesterday's trade. Remember, as money-flows...the market goes!

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