Rest of the Story: Technical Outlook

May 30, 2018 03:26 PM

Markets seemed right for a correction after the 40 cent plus run-up in soybeans that began with good gains also in corn and big gains in wheat that began just 8 trading days ago.  Weather ahead of the three-day weekend last Friday was for hot but that was well known.  It was the post-holiday trading that would reflect weather of continued hot and dry or some relief.  The forecasters were nervous to predict any significant rains or a significant area of coverage. The chances of rain did indeed materialize into larger coverage and larger amounts in scattered fashion that supposedly surprised the trade.  No doubt some that needed it got it and some that did not, got it anyway.  The Trump decision to impose another $50 billion dollar tariff situation on China didn’t help matter either.  Nevertheless a correction indeed resulted through today helped additionally by very good crop ratings that likely have some increasing outlooks for yields having the last three years in their memory bank.

From posted mid-May on news that a framework was agreed to with China to the recent top last week soybeans gained over 50 cents, corn only a dime, with Chicago wheat gaining 68 cents from extreme low to high over the same two-week period.  No wonder there was some profit taking and likely selling.  Markets often go down faster than they go up and in two short days wheat and soybeans lost 50%, but corn lost all of the gains.  If there is a bit of good news it is that prices did show some resilience and futures did not close on the lows.   Charts below depict the rest of the story for prices.

CORN:  Corn lost in two days what it took six days to accomplish.  Corn penetrated the lows posted prior to the surprise “China trade framework” of the week before, however Dec corn did not close below the low posted as a result of that framework.  Trump’s new $50 billion tariff threat didn’t help but more likely it was rain and crop ratings that took out any weather premium.  Corn needs a catalyst on Friday morning in the form of good export sales report to keep a weekly close from looking more negative.

Corn Chart Gulke Group

SOYBEANS:   Note the multiple times soybeans have tried to breakout to the upside with no avail.  The good news today May 30th is that the retracement to $10.31 was right at 50% of the move higher with SX holding that level.  It is not unusual in any market for rallies and retracements, and this was one of them.  The patient person might say that markets go up and markets go down and this was one of those days, however there was some technical damage done to soybeans.  My concern still lies in the irrational exuberance of some in the biz that believe China will come back with a vengeance for our old crop beans----Friday’s export report will give us an update.

Soybean Chart, Gulke Group

WHEAT:  Bullish markets can tend to have three major waves higher and the wheat chart below shows that and what resulted.  The good news is that a reasonable uptrend, although rather steep, is still intact and coincidentally came today at bout a 50% retracement from the Chinese agreement rumors, even though we don’t sell much wheat to China.  Obviously further deterioration in wheat this week would make things look weaker.

Wheat chart, Gulke Group

With weather maps showing heat returning to the west and Mid-west next week, there is a good chance that markets got ahead of themselves, yet one can’t deny that technical damage was done to the corn price picture while not so much in wheat and soybeans. 


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