Short-Term Momentum In Soybeans Swinging To Bears

September 20, 2013 01:11 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 1 to 2 cents lower, soybeans are 11 to 13 cents lower and wheat futures are mostly 1 to 3 cents lower. How markets close the week will be more important to near-term price direction than how they trade through the the morning hours. Cattle futures are expected to be mixed ahead of this afternoon's Cattle on Feed Report, while hogs are seen opening under pressure.


* Nov. beans fill chart gap. Now what? Nov. soybean futures filled the Aug. 26 upside chart gap at $13.31 1/2 Thursday and are showing followthrough selling early this morning. By filling that gap, the technical picture flipped from bullish to a bearish tenor. If the contract ends near weekly lows, it would suggest at least a short-term top is in place and an extended pullback is underway. If, however, bulls are able to fight back and the contract closes well off the overnight lows, the filling of the gap could turn into a bear trap. That would suggest the soybean market has one more run to the upside left in it.

The long and short of it: Soybeans are at a critical crossroads technically that will likely have a significant impact on near-term price action.

* Short-term momentum swings to bears. USDA is projecting only 150 million bu. of soybeans will be left at the end of the 2013-14 marketing year -- a modest uptick from 2012-13 -- but price action suggests bears are gaining the short-term upper hand. Instead of being supported by the bullish long-term outlook, soybeans are being pressured by profit-taking and late-season rains that will help beans that haven't shut down fill pods. Long soybean/short corn spread unwinding has also been a key source of pressure this week. After the Nov. soybean/Dec. corn spread widened to 3.01:1 last Friday, traders have decided to unwind those spreads. While traders’ attitudes remain much friendlier toward soybeans than corn, the price ratio had simply widened too far too fast in favor of soybeans. Given a modest increase in projected soybean carryover for 2013-14 and a sharply higher new-crop corn ending stocks projection, I expect the front-month soybean:corn price ratio to eventually expand into the 3.25:1 to 3.5:1 range -- or higher -- but not until the post-harvest timeframe.

The long and short of it: Given projected tight carryover for 2013-14, soybean traders should be focused on rationing supplies but instead they are choosing to brush that aside for now. A drop in price now will only build demand for soybeans and thus make traders' job of rationing new-crop supplies all the more difficult down the road.

* Rains moving out. Remnants of the rains/storms that swept across the Corn Belt the past couple days are still present in areas of the eastern Belt this morning. While the moisture was badly needed, it came too late to help the vast majority of the corn crop and some of the soybeans crop. The rains also came with high winds and hail in some areas, which took a toll on mature or maturing crops and will slow down harvest efforts that were starting. Forecasts call for drier conditions into early next week, but the National Weather Service 6- to 10-day outlook for Sept. 25-29 calls for above-normal precip over Iowa, Minnesota, Wisconsin, Nebraska and the Dakotas.

The long and short of it: This week's rain event was bitter sweet -- badly needed, although the swathes of hail and high winds were damaging.


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