I ran across this on Futuresource. I thought some of you may be interested.

SOYBEANS

In 2004 we were overwhelmed with articles telling us that the United States would be relegated to that of a secondary provider of Soybeans and that Brazil would soon become the major world producer. In fact there were (are) economists that suggest that perhaps American farmers should just plain quit producing soybeans and let our neighbors to the south do the job (wonderful a new cartel, but this time with our food). But then like Superman out of nowhere, all of a sudden, without much warning the market exploded and soybeans were catapulted over ten dollars a bushel. Given the world demand for better diets, especially in China, we were provided with a glimpse of just how sensitive this market is and in our opinion just how volatile this market will continue to be. So where might this market go? I recently spoke with an industry veteran who has specialized in long term technical analysis for several decades. His analysis suggests that we may well see Soybeans go below the four-dollar level some time the first quarter of 2005, and then he believes the market will be ready to experience a major explosion. Steve, Tom and I are not ready to predict such a major downward move but do believe that there are factors that will continue to provide traders with a volatile Soybean market.

Factors to be aware of include the ever-present threat of bad weather. In our thirty years in the business we have not witnessed a growing season as perfect as 2004. As I traveled across the entire growing area of this country I was amazed at the uniformity of the crops, and the outstanding yields proved just that. But there is an interesting statistic you want to keep in mind. If you go back to 1985 and look at a comparison of actual production versus the projected trend line yield you will see an interesting pattern. Each time we experienced a yield that was significantly above trend line, the very next crop year yield retreated to or below trend line projections. Is this an absolute guarantee that the 2005 yield will be less then 2004? Not at all! But it is a factor worth your attention as we get into the growing season. Other factors worth watching include the threat of Asian rust that blew in from South America, Chinese demand and the value of the dollar.

With all that in mind what are our ideas? We believe that soybeans will have a negative bias until sometime near the end of the first quarter into perhaps the beginning of the second quarter. Soybeans, in our opinion, have a chance to get into the four dollar level, but we do not see three dollar beans at this time given the market dynamics as they are today. In the second quarter the speed of the game will increase. Any reasonable threat to either North American or South American production such as weather or rust, or any unexpected demand will have a good chance of providing the rocket fuel to thrust this market back to levels close to what we witnessed in 2004. But keeping in mind, like Dennis Miller would say, "Then again we could be wrong".