TECHNICAL COMMENTS
Unexpected Demand Element!
SOYBEAN COMPLEX: A chart of daily closes provides a better view of the developing bull market. A major downtrend line was established following the first advance. Significance of the line was enhanced by two additional points during the recent pullback. This week's close above the line should confirm beginning of the next advance. The first leg of the developing bull market (1) gained 64 cents. If the second leg is equal, an objective of 5.40 will be indicated. If the second leg becomes a Fibonacci ratio, an objective of 5.71 is possible. Stochastics gave a buy signal on the close of 11/17/00 and remain in a positive mode.
March Soybeans
A chart of daily closes provides a better view of the developing bull market. A bottom was completed in August and the first leg (1) of the advance gained 2570 points. If the second leg (2) is equal, an objective of 188.30 is indicated. Following completion of the first leg, the market has traded in a wide, horizontal band. This week's penetration of the band provides an immediate objective of 181.40. Stochastics gave a buy signal on the close of 11/17/00, confirming the horizontal band breakout.©2000 CQG Inc.
January Soybean Meal
The USDA increased their estimate of South American production once again...©2000 CQG Inc.
| Perfect Outlook!
USDA Production Estimates Million Hectares And Tonnes |
||||
| 1999 | 2000 | 2001 Estimates | ||
| Actual | Actual | 10/12/00 | 11/09/00 | |
| Brazil | ||||
| Harvested Area | 12.90 | 13.40 | 13.40 | 13.40 |
| Yield | 2.43 | 2.43 | 2.50 | 2.57 |
| Production | 31.30 | 32.50 | 33.50 | 34.50 |
| Argentina | ||||
| Harvested Area | 8.17 | 8.57 | 9.30 | 9.30 |
| Yield | 2.44 | 2.42 | 2.43 | 2.47 |
| Production | 19.90 | 20.70 | 22.60 | 23.00 |
| Paraguay | ||||
| Harvested Area | 1.20 | 1.15 | 1.20 | 1.20 |
| Yield | 2.50 | 2.52 | 2.50 | 2.50 |
| Production | 3.00 | 2.90 | 3.00 | 3.00 |
| Total Production | 54.20 | 56.10 | 59.10 | 60.50 |
Although South American farmers are just beginning to plant, the USDA apparently received indications of improving yield prospects from last month. Argentina's yield was increased to a new record of 2.47 tonnes per hectare compared to the previous record of 2.44 established in 1999-00. Brazil's yield was also increased to a new record of 2.57 tonnes per hectare compared with the previous record of 2.50 established in 1998-99. Paraguay's yield was unchanged and below the previous record of 2.52 established last year. Total production was increased from October's record forecast of 59.1 million tonnes to a new record forecast of 60.5 million. Near perfect growing conditions will be required to produce new record yields in both Brazil and Argentina.
Because of the increase in South American production, the USDA reduced
their U.S. usage estimate...
| Reduced Demand For The U.S.!
U.S. Soybeans--Million Bushels |
||||
| 1999-00 | 2000-01 Estimates | |||
| Actual | 10/12* | 11/09* | PP Est | |
| Beginning Stocks | 348 | 288 | 288 | 288 |
| Production | 2654 | 2823 | 2777 | 2777 |
| Imports | 4 | 3 | 3 | 3 |
| Total Supply | 3006 | 3114 | 3068 | 3068 |
| Crush | 1579 | 1615 | 1600 | 1640 |
| Seed | 90 | 90 | 90 | 91 |
| Residual | 77 | 79 | 77 | 77 |
| Exports | 973 | 965 | 950 | 1000 |
| Total Demand | 2719 | 2749 | 2717 | 2808 |
| Ending Stocks | 288 | 365 | 350 | 260 |
| *--USDA Estimates. | ||||
Production was reduced for the third consecutive month by a greater than expected 46 million bushels. Crush, exports and residual usage was reduced 32 million in response to the increase in South American production of 1.4 million tonnes, or 51 million bushels. The USDA's estimates now reflect: record large supply, demand falling below last year, and the largest ending stocks in 14 years. Our demand estimates reflect a more balanced view of foreign production and consumption. We expect a slight reduction in ending stocks of 28 million bushels from last year.
It is noteworthy to compare the USDA's early optimism in estimating U.S. production. In August, near perfect growing conditions were expected and production was estimated at 2989 million bushels. However, near perfect conditions did not occur and the latest estimate declined by 212 million, or 7%. Again, the USDA appears extremely optimistic in forecasting record yields for South America. A comparable decline in estimates to those experienced in the U.S. would be the equivalent of 155 million bushels.
A new development occurred this week that could materially change the supply/demand outlook for soybeans and meal. France announced an immediate ban on feeding of meat and bone meal to all animals, including pets. An alarming increase in human cases of BSE (mad cow disease) led to consumer panic and a reported reduction in beef sales of nearly 50%. A spokesman for the French Oilseed Producers Association indicated that France produces 740,000 tonnes of meat and bone meal annually. He estimated that France would need to import the equivalent of 925,000 tonnes of soybean meal to replace the loss of meat and bone meal in feed rations. Others estimate a more modest increase of 30,000 to 60,000 tonnes per month. Regardless of the wide range in estimates, the soybean complex will have to deal with a large, unexpected demand element in months ahead.
The size of this new demand element will depend on the following...
- Whether or not the entire EU follows the French lead and bans feeding of all meat and bone meal.
- How much of expanded needs are met by imports of alternative proteins, such as corn gluten, fish meal, rapeseed and other competitive products.
- Of the soymeal portion, how much will be imported as meal and how much will be produced by European processors importing more soybeans.
- Concerns over BSE could shift consumers toward poultry and away from red meat. If this occurs, meal demand would be even greater because poultry consume more meal in their feed rations.
- Europe prefers non-GMO grains and oilseeds. The U.S. is the only country with adequate supplies to meet expanded needs between now and spring. However, because Brazil produces only non-GMO soybeans, demand will likely shift away from the U.S. and Argentina following the spring harvest in Brazil.
November 18, 2000 Bill Gary Commodity Information Systems, Inc. 1601 N.W. Expressway, Ste. 1450, Oklahoma City, Oklahoma 405-879-9804