CBOT soybeans are likely to rise to $5.50

Introduction: main points: 1 History shows that the average trading range of July Soybean after December 1 is $2.16 2 If the current price of soybean in July is kept to December 1, it will be the lowest price in 29 years 3 In July, the upside space of soybeans was much larger than the downside space 4 If the new agricultural law of the United States can be implemented before the crop planting in 2002, the soybean planting area will be greatly reduced 5 Soybeans could rise to $5.50 to $5.75 in July in the next eight months This week CBOT soybeans unexpectedly fell sharply Due to the sluggish performance of the soybean market, it is impossible to predict whether the soybean price will fluctuate in a narrow range this year Generally speaking, the trading range of July soybean futures after December 1 is quite wide even in the year with relatively large ending inventory This paper studies the historical trend and tries to confirm the possible trading range of soybean futures in July 2002 [half of the time, the July soybean trading range is at least $1.75] since 1973, in the period from December 1 to July when the contract expires, the average trading range of July soybean is $2.16 For 50% of the time, the trading range is at least $1.75 In half of the time, soybeans rose to $7.50 in July, but only 7% of the time In July, soybeans were below $4.20 As of November 28, the July soybean contract closed at $4.45, just a few cents above the low of $4.41 The contract low was set on October 22 Factors that affect the July soybean contract trading range include: changes in ending inventory to consumption ratio after the USDA report in November, unit yield of next year (expressed by percentage deviation from trend unit yield) and soybean price in July as of December 1 Over the past 10 years and 9 years, the U.S Department of agriculture's November report overestimated the end of period stock / use ratio of soybeans Therefore, it is reasonable to make a similar assumption this year that the final ending inventory will be lower than the USDA forecast in November We don't have any foresight about the yield per unit in 2002, but in the past five years, on average, the yield per unit is 1.2% lower than the trend yield Finally, if the July soybean price was traded near $4.50 on December 1, it would be the lowest soybean price since 1972, which was $3.89 in 1972 Based on the above three factors, a forecast model of soybean trading range in July is established, and the trading range of soybean in July 2002 will be $1.25 Historically, trading ranges of at least $1.25 have been 62% since 1973 [the upside potential is greater than the downside risk] some analysts predict that the [also free to agriculture] act (F2F) has changed the mode of market response to changes in supply and demand fundamentals They pointed out that it is now certain that there will be no reserved crops, and market loans ensure that almost all crops will be available in the market, rather than fixed in the warehouse of the American commodity credit corporation The F2F act does bring important changes to the market structure The impact of the bill is that it reduces the chance that prices will reach the same high in the 23 years prior to its introduction That means the odds of soybeans rising to $7.50 in July are 50% lower than the historical average However, the F2F act may indeed reduce the probability of soybean rising to 7.50 USD in July, but it will not reduce the average trading range of soybean in July In the five years since the introduction of F2F, namely 1997-2001, the average trading range of soybean in July has been up to $1.54 In addition, different versions of the new agriculture act will propose to adjust the agricultural loan rate, which will lead to the reduction of soybean advantage over corn If the bill is passed in time for crop planting in 2002 (plus lower fertilizer prices), it could result in millions of acres of reduced soybean acreage in 2002 Due to the record volume of soybean export contracts, the soybean squeezing in September and October is only a few million bushels away from the historical record in 1999, so these good fundamentals show that the price of soybean in July at $4.50 will be close to the low end of the trading range in the next eight months If our expected trading range of $1.25 is upside space, then this may mean that the soybean peak in July 2002 may be between $5.50 and $5.75.