This is a sample entry from John Payne’s newsletter, This Week in Grain, published on November 14, 2012.
You probably noticed in Monday’s report the missing charts section. That is because this week TWIG is doing deeper chart analysis on corn, beans and wheat. Yesterday we went over corn, today we will touch on beans, and tomorrow we will go over the wheat markets. Before we get started, below are a few bullet points worth mentioning from today’s newswires:
- A very positive crush report, along with a 4.4 million bushel purchase of soybeans by China has the market in bounce mode, following three days of fund selling.
- South American weather reports are unchanged. At this point, the weather story will remain muted.
- The corn export bookings have been low of late, but I am hesitant to blame demand. I am more apt to blame the low river levels on the Mississippi and an ongoing Chinese harvest at this point. The low river levels are causing a logistical mess for end users, making it difficult for processors to get the product they need, and exporters getting their product to the gulf. The demand seems very strong in the middle of the country with many river terminals still paying 10-20 cents over Dec futures.
- Hamas has declared they are in “Open War” with Israel after attacks by the IDF on targets in the Gaza Strip this morning. Any Middle Eastern escalations are bullish for commodities, especially the energy complex.
On to the charts!
JANUARY 2013 SOYBEANS
The front month bean contract is in bounce mode this morning due to short covering and a better than expected Crush report. This has given way to what technical traders call a “doji” chart pattern. This typically will happen when a market is at a decision point. In my opinion, it is no coincidence we are seeing this near the 1400 price level.
- As you can see on the chart below, 1400 provided a pause on the way up. If I could pull this chart back even further, you would see that front month prices fought with 1400 multiple times throughout 2011 before eventually breaking through in 2012. I am hypothesizing that 1390-1400, once being heavy resistance, is now support.
- TAS tools is in full “sell” mode. All three indicators are encouraging trading from the short side.
- There is a significant “up” trend-line going back to double bottom lows made last winter. I expect this trend line to hold, or at least be battled with for the short term.
NOVEMBER 2013 SOYBEANS
November 2013 Soybeans represent the beans being planted in the spring/summer of 2013 and harvested a year from now. As you can see by looking at prices, the new crop 2013 beans are trading at a significant discount to the old crop front month beans. Because of the premium of cash over futures, and the ability for a weather rally to cause a lifting of hedges, producers of beans should be NO MORE than 10-15% forward sold until we get better clarity about South America.
- TAS Tools are recommends playing this contract from the short side, as all three indicators are well in the red.
- The uptrend line, which correlates in time with the one on the chart above is well below current prices, all the way back down in the 11 dollar area. If we would see a massive wash in prices, then that area would be a potential target. Remember when 11.00 beans were expensive?
- The Nov 13 contract battled with 14.00 and lost, a few months ago. Is there something magical about the 14 dollar level?
Remember, this contract will include beans produced in South America and the US. If both regions have fantastic growing years, the tight carryout situation could be closer to solved.
NOVEMBER 2012 SOYBEANS – NOVEMBER 2013 SOYBEANS
The chart below is the spread chart for the beans harvested this fall against the beans harvested next fall. Keep in mind the November 12 contract is only for deliveries at this point, but it does still trade. I want to feature this chart because it shows us the premium that is priced in the cash market. This spread has seen 3.00 evaporate in the last 75 days.
- Unlike the corn spreads we saw yesterday, the bull spreads have not been bottoming. We have some pretty good action being priced today, but it’s only a portion of the massive move seen since two Friday’s ago.
- There are neither immediate support levels nor trend line support for this spread. The raising of soybean production over the last two WASDE reports has added supplies for the “hand to mouth” crowd. Keep an eye on the front month vs. new crop spreads going forward; they could give some indication of when funds are done fighting for the exits.
- This is not so technical in nature, but there are some seasonal tendencies for bull spreads in beans to work from the end of December until the middle of February.
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