Old-Crop Soybeans Signaling A Top

March 12, 2014 12:53 AM

What Traders are Talking About:

Overnight highlights: As of 5:45 a.m. CT, corn futures are trading around 1 cent lower, May soybeans are 24 cents lower while deferred contracts are 10 to 14 cents lower and wheat futures are mixed. Cattle futures are firmer, while hogs are moderately to sharply lower in electronic trade.


* Topping signs in old-crop soybeans. May soybean futures posted the first back-to-back lower closes since the rally from the late-January low started the first two days this week. That was followed up with a gap below the uptrend from the late-January low overnight, signaling definite short-term topping action on the daily price chart. In addition to the technical breakdown, traders have also been actively unwinding bull spreads this week, another sign the market has put in at least a short-term top. Bears' target is now the September 2013 high at $13.49, which lines up very closely with a 50% retracement of the rally from the late-January low to the contract high. Funds have been active sellers the first two days this week, selling a combined 16,000 contracts (80 million bu.) of soybeans. With funds still heavily long soybeans and given the technical breakdown, additional fund selling is possible, if not probable.

The long and short of it: With old-crop beans strongly signaling a top is in place, it could be a struggle for bulls as seasonally, this is not typically a strong period for soybeans as the South American crop hits the world market. It's likely going to take a fresh bullish "event" in South America to stop the price pullback and recharge buying interest.

* Don't be surprised if there's soybean cancellations. Despite the sharp price break in old-crop soybean futures this week, there has surprisingly been little talk of Chinese cancellations of U.S. soybean purchases. And Gulf basis hasn't sharply weakened, which typically happens if cancellations are coming. Instead, I'm hearing exporters are not letting Chinese buyers out of U.S. soybean purchases due to losses they have incurred because of China's rejections of corn shipments containing MIR 162. But with that said, price action in soybean futures overnight appears to be more than a technical breakdown. It wouldn't surprise me to hear of some cancellations of old-crop U.S. soybean purchases -- or at least some talk of that -- with Brazilian soybean shipments picking up.

The long and short of it: Active cancellations of old-crop U.S. soybean purchases are needed to keep carryover at USDA's forecast of 145 million bushels. But news of such would still be price-negative.

* Record wholesale beef and pork prices. Choice boxed beef prices and the pork cutout value each posted an all-time high Tuesday. Choice boxed beef prices now stand at $241.47, besting the previous record posted in late January. The pork cutout value is now $116.46, topping the previous record from late June of last year. While the record runup in wholesale beef prices is slowing retailer demand, pork demand remains strong despite the record pork cutout value as pork is still cheap compared to beef.

The long and short of it: The record wholesale beef and pork prices will be passed onto consumers. Retailers may turn to more poultry features if they fear getting stuck with high-priced beef and pork if consumers balk at higher prices.


Follow me on Twitter: @BGrete

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