Still Holding Old-Crop Beans? Price Action Signals the Market May Be Topping

July 24, 2013 01:15 AM
 

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading steady to 2 cents higher, August beans are 4 cents lower while other contracts are 2 to 6 cents higher and wheat futures are 2 to 4 cents higher. Overnight trade suggests the corrective bounce will continue this morning, but the upside is limited and buying interest will very likely be light. Cattle and hog futures are expected to trade slightly lower this morning.

 

* Top for old-crop beans? August soybean futures had been rallying amid tight supplies and a strong cash market. But old-crop basis dropped sharply across the countryside and at the Gulf Tuesday amid a pickup in farmer selling and talk China will soon release up to 3 MMT of government reserves onto the Chinese domestic market, which would potentially curb demand for U.S. soybean imports. As a result, August soybean futures posted a bearish reversal and are lower early this morning. That type of price action doesn't typically happen in a strong, healthy bull market and is a red flag that a top may be in the works.

The long and short of it: While supplies are tight and will remain that way until new-crop soybeans are available, yesterday's price action in futures and the cash market suggests you may want to sweep the bin if you are still holding old-crop soybeans.

* HRS tour finds strong yield potential on day 1. The North Dakota spring wheat crop got off to a rough and late start, but it appears to have made up for lost time. Scouts on the first day of the annual Wheat Quality Council HRS tour found an average yield of 43.3 bu. per acre from hard red spring wheat samples taken along routes in the southern half of North Dakota and northeast/north-central South Dakota. That compares to last year's day 1 results of 42.9 bu. per acre and the five-year average of 41.7 bu. per acre on similar routes.

The long and short of it: Strong spring wheat yield potential will make it hard for wheat futures to rally short-term. But there is an opportunity to build export demand as global supplies of high-protein wheat are relatively tight, which is potentially bullish longer-term.

* China's manufacturing sector continues to slump. China's July HSBC flash purchasing managers' index (PMI) dropped to an 11-month low of 47.7 from a final reading of 48.2 in June. Demand for Chinese products remains the primary concern. The new orders sub-index also came in at an 11-month low and was below the contraction line of 50 for a third consecutive month. Without a pickup in orders, China's vast manufacturing sector will continue to slump.

The long and short of it: China's slumping manufacturing sector is negative for commodities as a whole. But ag commodities have an advantage over industrial commodities in that they feed people and China has a lot of people to feed. Still, China's weakening economic data doesn't create an environment where investors want to actively pump money into commodities.

 

Follow me on Twitter: @BGrete


Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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