TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
After two days of weak price action and a failed test of contract highs, November soybeans filled most of the gap but came back strong and closed higher on the day. This is a technical buy signal and could lead to a test of the $14.10 highs or even a new leg higher.
Many times bull markets will gap higher at some point. When this happens the gap becomes a target on the chart. What happens when the market gets back into the gap can be a telling story. If a bull market is any good it usually fills a gap about 3/4 of the way and reverses. If the gap gets filled and the market closes below the bottom of the gap then the bull run may be ending. In this case, November soybeans filled almost 3/4 of the gap, reversed off the low, rallied over 30 cents and closed not only higher on the day, but back above the short term 9-day moving average. This could certainly be seen as a technical buy signal and may indicate that soybeans will go retest the recent highs and could even be setting up for a run to new highs.
From a fundamental standpoint soybeans have had a reason to rally in recent weeks. Weather got hot and dry at a bad time for soybeans causing many analysts to lower their yield estimates. Lower yields mean lower production and tighter balance sheets and the potential need to price ration. For the moment the weather concerns and prospects for lower production have taken center stage. There are some limiting factors in the long run however. For one this year is much different then last year. Currently the USDA is reporting the soybean crop condition at 54% good to excellent while this time last year soybeans were rated at 30% good to excellent. We can argue that the USDA is wrong, but as I have said in the past - ultimately the USDA numbers are the numbers we have to go by.
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Aside from crop conditions, the bigger difference for this year compared to last year is the situation in South America. Going into our drought last year South America had just come out of a drought growing season with sub-par production. This year South America has a monster crop and is gearing up to increase acreage on their next crop. This means that there are more soybeans in the world then there were a year ago and if US prices continue to rise South America could take a big chunk of our export business and even begin to import to the US on a larger scale.
Corn and wheat may also be a drag on soybean prices as the outlook for both is rather bearish. A big corn crop and lagging demand could result in some of the biggest corn stocks we have seen in recent history. This will likely continue to keep pressure on corn prices. Wheat stocks are also large and there is plenty of wheat in the world. Because of this the US has missed out on some export business due to more competitive prices abroad.
However, for the moment it seems that the soybeans might be poised for some more strength. It seems that most of the factors that could eventually put a lid on soybean prices are being overlooked for now. Right now weather is front and center and weather is causing concern. This could continue through harvest but do keep these factors in mind.
Analysts tend to agree that the hot and dry August into September is lowering yield potential but disagree by how much. Next Thursday the USDA will chime in on the matter. If they have a different opinion and choose not to lower yield as much as the market is expecting that could end this strength at least until we get into harvest and see what we really have. Also, if the rains advertised for this weekend are better then expected it may take some wind out of the sails. Aside from that, it does seem that the soybeans could find more strength in the days to come.
I am headed to North Dakota next week to be a part of a marketing discussion panel at the Big Iron Farm Show on Tuesday, September 10th at 1:30. If your in the area come say hi. Otherwise, I'll be back to sharing my thoughts the following week. Hope to see you at Big Iron!
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Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.
December Corn Daily chart:
November Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have corn near $5.00 and soybeans near $12.00. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
Please check out my Blog at: http://tedseifriedfutures.com/
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Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.
FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.