Silver and Soybeans Slide on China News

The USDA drastically lowered its estimation for the number of soybeans that would be in storage at the completion of the 2011 harvest, sending soybeans to a two-year high early in the week.

The report, released Tuesday, showed that a meager 185 million bushels would be stockpiled in the US before next year's harvest. This caught many traders and producers off-guard, as industry analysts had called for a number in the 240 million bushel range. As a result, soybeans for January delivery leapt 50 cents (+4%) in a matter of hours, closing Tuesday at $13.43. Soybeans had not closed above $12.90 since September of 2008.

Tuesday's rally was counteracted Thursday night on speculation that high inflation in China might force the Chinese to raise interest rates. Predicting that a rate increase (and a stronger Chinese currency) would make it more expensive for the Chinese to continue to buy our beans, the January soybean futures contract tumbled to $12.69/bushel, completely erasing Tuesday's gains.

With no major supply and demand reports scheduled to be released until next year, outside market forces such as Chinese economic decisions, South American weather, and the US Dollar took center stage Friday, triggering a limit down move around noon.

Silver Swings

Silver has continued to shine as one of the most exciting commodities, reaching new thirty-year highs this week at $29.34 per ounce. Silver did not hold long at these high levels, dropping quickly back to $25.75 per ounce on Friday amidst selling linked to the increase in Chinese interest rates.

Uncertainty about the global economic recovery, inflation, and the public's interest in precious metals all underscored this week's wild action. Many view the drop back down toward $26 as an opportunity to buy into the silver market, hoping that prices will continue in their near-meteoric rise.