China has bought more beans than needed.

U.S. exporters are not letting them out of previous contracts without severe penalties. The USDA attaché’ in China reduced the import estimate one million tons last week as a result. China importers are desperately trying to move Brazilian contracts forward or sell cargoes to others. Chinese crushers are exporting excess meal to other Asian nations at deep discounts. Will China’s importers eventually pay the price for over purchasing or will recent speculative buyers pay the price?

Crop estimates for Brazil declined during the last half of February with some coming in as low as 85 million tons from 90 the month prior. The lower estimates were due to declining weather events where it went from drought like conditions in Argentina then Brazil to too much rain that delayed harvest. Coupled with the fact that China did not cancel any previous made old crop purchases, funds therefore increased their long position that ultimately led beans $2.00 higher, from $12.60 in early February to over $14.60 last Friday March 7. With weather turning better in South America for harvest purposes and the fact the USDA only cut bean ending stocks 5 million bushels in the last month, funds took profits and the market closed 45 cents lower from the yearly high on Tuesday March 11.

Let’s look no farther than last year to see how demand from China abated in March and April. Last March shipments collapsed as the South American crop came online, leaving the U.S. no longer the primary port of origin for beans. Last March 4 we inspected and shipped 40.2 million bushels, with China in for 25 of the total. Last March 11, the U.S. shipped 17 million with China in for just 2.7. On March 18 we shipped 9 million with China in for five million of the total, and lastly March 25 of last year saw the U. S. shipping 18 million and China in for 6 million of that total. Last March export sales for future shipment also collapsed. On February 28th 2013 we exported for future shipment 684 thousand metric tons. On March 7th exports were 392 million. On March 14th, 66 million. March 21st, 107 million and March 28th, 66 million. April was bearish on shipments and export sales as well. On March 31st of this year, the planting intention report is expected to come in showing 2 to 4 million more acres planted for beans and 2 to 4 less for corn due to the high prices of soybeans.  If so we could see another sizable break into April before our planting season begins in the upper Midwest.

For a longer term position trade look to buy the June Soybean 1300 put and sell the June 1200 put for a purchase price of 12 cents or a $600.00 risk. The maximum profit on the trade is $5000.00 if both strikes finish in the money at the time of expiration. The risk on the trade is the price paid for the spread plus all commissions and fees.

For those interested Walsh Trading is holding our weekly grain webinar series this Thursday March 13th at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.