Are Soybeans Headed for New Highs?
Mar 18, 2014
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After almost a $1.00 pull back, May Soybeans have now bounced back to within 42 cents of the highs. Fund and technical buying have helped the soybeans to recover, but is this the start of a new leg higher in this bull move? Or is this a continuation of a topping formation?
Since the end of January old crop soybeans have rallied over $2.00 from the lows. This strength has come from fund buying and concerns about tight stocks. Soybean exports are on a record pace and the fear is that the US could be left with a historically tight ending stocks figure if these strong exports continue. On top of this funds, which are largely technically driven, have jumped into the market and helped add fuel to the rally. However, last week the USDA reported only a 5 million bushel reduction in the projected carry over and soybeans fell sharply from the highs.
The fundamental picture for soybeans is a highly contested matter at the moment. On one side you have the bull camp who feel that even with cancellations from China export demand needs to be increased dramatically which would leave ending stocks at historically low levels and below what the USDA considers "pipeline supplies". On the other side you have the bear camp that will argue that a projected record world carry over should keep global soybean prices in check and that the US could even import a large amount of soybeans if need be.
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This debate continues to rage on, but until last week the bull camp was firmly in the drivers seat. Now, things are a bit more two sided. With South America moving along with harvest and shipping out soybeans the question is will we now see more Chinese cancellations or imports of South American soybeans? We heard early last week that China had canceled 30-40 cargoes of South American soybeans and that at least some of them were on there way to the US. Without any import reporting system in place it is hard to tell to what extent we are actually seeing South American imports, but the stories are certainly out there.
From a technical perspective soybeans, for the time being, have a V top formation. This means that we went from a bull run to a sell off in a matter of 2 trading days. This sort of sharp reversal is rarely a long term top or bottom in the grains. So, when soybeans could not extent the break lower the next logical technical move would be to go an re-test the previous highs. It seems May soybeans are in the process of doing just that.
The question really is - can soybeans break through to new highs and extend the rally, or is this just part of a larger, longer term topping formation. Certainly the extent of fund buying will have a hand in determining this. But funds are not usually the ones to break new highs. This usually comes from bullish fundamental news. Many funds will only buy based on technical indicators, but will stop short of key levels or resistance and leave it to the market to determine if new highs are justified or not. It will be very interesting to see if soybeans can do it or not considering that for the moment fundamentals may not be as bullish as they were a few weeks ago.
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May Corn Daily chart:
May Soybeans Daily chart:
May Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. 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
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