Soybeans

U.S. Securities & Futures Corp.
100 Wall St. NY, NY 10005 Tel (800) 818-9588 © Peter FiotiNovember, 96

SUPPLY FACTORS

• The world supplies of soybeans and the soy complex are at long term lows both in purchasing countries, and in major export countries such as Brazil, Argentina and the US.
• The trend over the past twenty years in soy yields is up. However, even with this year's increased plantings, it will take one of the largest yields in history to produce enough beans to keep pace with current usage.
• This year's domestic crop was planted late, and under poor growing conditions. This could reduce this year's potential yield.
• This year's ending stocks are not expected to be significantly better than last year's. Currently, stocks are at 8 to 13 year lows, and as a percentage of usage, this year's ending stocks are at 20 year lows.

TIME / PRICE

• Soybeans have a seasonal tendency to sell off during harvest because of the increase in supply.
• Currently, Soybeans are trading near the top end of a price channel that has lasted several years. This channel has remained relatively intact despite the fact there doesn't seem to be any significant reflection of inflation in the chart.

• The last 4 Soybean rallies (in '83,'88,'93,'95) have coincided with a drop in ending stocks. There is a good chance this situation could arise again this year.

FUTURE DEMAND EXPECTATIONS

• Due to a poor season, world grain and oilseed supplies are at long term lows. This diminished the possibility of price relief usually available through substitution.
• This year, demand is expected to again climb to new highs and is likely to come close to current production expectations.
• The new demand for meat products in emerging countries has created an increasing need for high protein feed to raise the animals. Soybeans produce meal ideal for that purpose.

MARKET VIEW

. We are looking at the trend towards increased world Soybean demand and considering its potential for eclipsing this year's production. Harvest season is around the corner, and the price of Soybeans seems stubborn in its resolve to remain high. In only a few weeks it will be clear how this year's crop has faired. For the last 20 years production has just barely outpaced demand. By increasing plantings, forcing higher and higher yields per acre, one has to wonder when top capacity will be reached and whether it will be enough. In the meantime, it's very possible fresh harvest optimism may fuel a dramatic drop in prices, only to be followed quickly by a rally larger than last year's. With low supplies and conditions stretching the yield capacity of the land, a good drop in price may be a recipe for opportunity. We may have a good year but considering the weather problems of the summer, a top record year is still to be seen. If we don't see a serious addition to current carryover stocks, a climb similar to last year's is certainly plausible. Possibly furthered by some real inflation, such a situation may provide excellent buying opportunities in Soybeans for those who anticipate it.