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Table 1: Top Five Soybean Producing, Exporting and Importing Countries Ranked by Production

1000 Metric Tons

Ranked by Exporting

1000 Metric Tons

Ranked by Importing

1000 Metric Tons

United States 92,261

Brazil

41,500

China

69,000

Brazil

85,000

United States

39,463

EU-27

12,100

Argentina

54,500

Argentina

12,000

Mexico

3,550

China

12,000

Paraguay

5,000

Japan

2,760

India

12,000

Canada

3,200

Taiwan

2,500

Source: http://www.pecad.fas.usda.gov/cropexplorer/cropview/commodityView.aspx?cropid=2222000 As of 5/24/13

soybean production. Specifically Brazil and Argentina have become the largest competitors to the U.S. soybean market due to a lower acreage cost, decreasing marketing and transportation costs and eliminating or reducing the soybean export tax. The depreciation of the Argentina Peso assists soybeans to be less expensive for importing countries to purchase. (For more discussion of the relationship of commodities to

currencies see Currencies in your Future Portfolio? ). 2) Increase exports of U.S. meat products caused a higher domestic utilization of soybean meal for feed, thus reducing the supply available for export. In the United States, soybeans are planted in the spring, grown in the summer and harvested in the fall. Too much rain in the spring could impede the ability to plant due

Chart 1: U.S. Soybean Export Market Share since 1980.

Source: http://www.ers.usda.gov/topics/crops/soybeans-oil-crops/trade.aspx#US www.stocknewsnow.com • www.snnwire.com • www.microcapreview.com

to fields flooding. Not enough rain during the summer could cause drought-like conditions. Either case may cause a decrease of supply at harvest time. The summer months tend to experience price volatility as production uncertainty increases and weather patterns change. These factors also increase the market’s probability for quick “spike” moves. Commercials (hedgers) and speculators may hedge the volatility by going long or short soybean futures contracts. The market tends to be less volatile once the harvest is known until the next planting season the following spring. The soybean complex allows for spreading between soybeans, soybean meal and soybean oil. A common processing spread is the crush spread. This involves being long (buy) soybean futures and short (sold) soybean meal futures and soybean oil futures simultaneously. A processor will utilize this spread to hedge the future purchase price of soybeans and the future sale of the soybean products of meal and oil. “Crushing” is the conversion process of soybeans into soybean byproducts of oil and meal. The crushing process will convert a 60 pound bushel of soybeans into about 11 pounds of soybean oil and 44 pounds of soybean meal.4 There is an old adage “beans in the teens”. Historically when the soybean market rallies, a move above $10 per bushel was considered a large move. As seen in Chart 2, the market tested $10 a few times prior to 2005. The summer of 1988 the U.S. experienced a drought summer and pushed the beans into the teens. Since 2011 soybeans have averaged in the lower to mid teen price range. The increasing wealth of emerging nations is a major factor for sustained soybean prices. As nations become wealthier they tend to increase their consumption of meat, thus increasing the demand for cooking oils such as soybean oil and soybeans for feed. China is a well known example of an emerging nation’s increased wealth and increased consumption of commodities. A Micro-Cap Review Magazine

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Micro-Cap Review Magazine Fall/Winter 2013  

The #1 magazine in the Micro-Cap space is pleased to bring to you the Fall/Winter edition of the Micro-Cap Review. This issue provides insig...

Micro-Cap Review Magazine Fall/Winter 2013  

The #1 magazine in the Micro-Cap space is pleased to bring to you the Fall/Winter edition of the Micro-Cap Review. This issue provides insig...