Odds Point To Higher Prices
I don't know who made this statement, but I certainly believe it's true: "The only thing we've ever learned from history is that we learn nothing from history!"
How true that is in marketing. Emotions rule the roost and the majority of people still get super-bullish at major market tops and extremely bearish at major market bottoms. In soybeans, if history tells us anything, this is not a time to be bearish - but to be looking for the upside.
There's a short supply of $4.50 soybeans. What the market has made abundantly clear since the summer of 1996 is that the world has a surplus of $8 soybeans. And at that price level, everyone in the world who can grow soybeans will grow more.
The laws of economics have not been repealed. What we're about to find out is that the world has a shortage of the $4.50 variety of soybeans. Hopefully we'll run out of those by the time you read this.
The chart tells a very revealing story. While prices range widely, soybeans spend the majority of their time between $5 and $8/bu. Since the beginning of time, soybeans have spent very little time above the $8 mark. Fortunately, since 1973, they've also spent little time under $5. As a matter of fact, since 1973 soybeans under the $5 mark have only occurred three times - in December 1975, August 1986 and now.
What's exciting is what's occurred the last two times soybeans have reached this price level. After bottoming in December 1975, by June 1976, beans had rallied from $4.49/bu to $6.67/bu. The ultimate top occurred in April 1977 at $9.85.
In August 1986 the bottom was at $4.82. By May 1987 the market hit $5.98 and by June 1988, beans peaked at $9.86.
Will history repeat? Obviously, no one knows for sure. I think the odds are reasonably good that soybean prices will be considerably higher next spring and summer than they are today. Attitudes are bearish. Everyone is scared to death and, unfortunately, many are even thinking of quitting farming - all are attitudes that occur at major bottoms.
Some may ask what may cause a bull market in soybeans. Quite honestly, I don't know for sure. If many people like myself already knew, prices wouldn't be at this low level now.
It could be continued dry weather in South America. Also, an improving economy in Asia will undoubtedly increase demand for soybeans and related products. Maybe we'll have weather problems in the U.S. I don't know - but I do know I don't want to be bearish on $4.50 soybeans. ?