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Sideways Grain Markets Poised for a Breakout

November 2, 2012

This information is provided by Archer Financial Services, Inc. 800-933-3996.


The soybean market had a real nice week if you could eliminate Monday and Friday’s trade. Between bookended $.30-plus losses each on Monday and Friday the soybean market rallied nearly $.50 cents.

The week started with the focus of the markets and the country on the impact that "Superstorm Sandy" would have on the East Coast. The New York Stock Exchange was closed on Monday and Tuesday, marking the first time that has happened due to weather since 1888.

Part of the fund selling that was attributed to the soybeans on Monday was being blamed on this closure. Funds that were unable to adjust their stock portfolios looked elsewhere to reduce their risk.

The mid-week bounce in soybeans was caused by value buying and expectations that new export business would be attracted to the lower prices. The rally gave way to a general commodity sell off on Friday on the back of a sharply higher US dollar.

All of the grains continue to be bound by a tight trading range. This sideways price action is causing the widely followed moving averages to converge. This is especially the case in the corn and wheat markets.

This sideways action will last for only so long before a breakout will occur. Last year that breakout was to the downside in the corn market and occurred around the November production report. That break saw corn values drop by $1.00 from its early November high to its mid-December low before recovering into year end.

This year’s fund long position in corn is greater than last year, which makes that market vulnerable to a similar action on the breakout to the downside. Global grain stocks are on the decline and it is a significant adjustment in this area next Friday that could provide the surprise that creates that upside breakout and a test of $8.00.

As we continue to wait for the next leg of this market, hedgers can look to short-term option strategies in which to lay off some of that risk. The clock is ticking…

 

 

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