Will Fund Buying Run Soybeans to New Highs?
Apr 22, 2014
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Soybeans have been under pressure to start the week after scoring new highs late last week. So far this week funds have been net sellers, trimming their massive long position. Will this trend continue, or are they getting ready to come back in a big way?
The bull market was in full swing last week as July soybeans set new highs on Thursday in front of the three day holiday weekend. This strength was fueled by a March NOPA crush number that was almost 8 million bushels higher then expectations and set a new record for March crush. At the end of last week it seemed as though the market was determined to factor in a 115-120 million bushel old crop soybean carryover. However, after the long weekend it seems as if the market mentality has changed for the moment as the trade's focus has shifted to the possibility of China defaulting on 1.2 million metric tons of US and South American soybean sales, South American cargoes being switched to the US, and the possibility of more soybean acreage.
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The talk in soybeans the last few days has centered around Chinese buyers trying to cancel open Brazilian contracts and that some of theses sales may get resold to the US. News wires reported that 2 cargoes of Brazilian soybeans and 2 cargoes of Argentinean soymeal are on the way to the US. Talk that China may soon sell state owned soybean reserves has also added pressure. For new crop soybeans, news that corn plantings were only 6% complete compared to 14% as the five-year average has sparked talk that if farmers can not get corn planted in time there may be even more soybean acreage then the already record figure set by the USDA Prospective Plantings report.
In the midst of the bearish talk surrounding the soybean market the large speculators of funds have stepped aside and have been net sellers. This has translated to a 50 cent sell off from last Thursday's highs. However, this has now brought soybeans back to trend line support and could now start to draw attention from the technical traders looking to buy a pull back in an otherwise bull market. Large speculators could very well be waiting in the wings to aggressively buy old crop soybean contracts one again. It will be very interesting to see if and how strongly funds might come back at or near current price levels. So far there is no strong technical topping formation in soybeans and technical trades could look to defend long positions at this point. However, if soybeans can not hold current levels a bigger correction or fund liquidation event could follow. For now we are waiting to sell old crop soybeans to see what the funds do at key support levels, and we are thinking they could come in as bigger buyers again soon.
New crop soybeans could be a different story. With projected record world soybean stocks and projected record US planted acreage new crop soybeans prices could be at or approaching highs. Certainly we still have a growing season to get through and a major weather issue could keep soybean stocks tight, but given normal weather soybean stocks could be near the highest levels in recent years by the time the US gets into harvest in the fall. Now might be a good time to look at pricing strategies for new crop production.
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May Corn Daily chart:
May Soybeans Daily chart:
May Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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