This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Wednesday, October 29, 2014.
I hope everyone’s nerves are surviving this bean squeeze. It’s not really just beans, its in corn as well. Prices are approaching the 380 high, last seen this summer. While corn is well off its lows, you could make the case the market has more room to push prices. Now, I still encourage folks to hang on to their hedges OR sell their product. If you lift your hedges and the market sells back off with the product still in your hands, you risk losing much more than if we would see prices rally toward 11.00 in beans and 4.00 in corn.
So what is going on here? Well, it really comes down to availability of product. Gavin Maguire of Reuters explains it pretty well. Check out his article here: http://www.reuters.com/article/2014/10/28/us-maguire-grains-idUSKBN0IH1YL20141028
The most interesting part of this is the soymeal term structure, or rather the change in structure over the last 29 days. Yes, its only been 29 days and bean meal has rallied from 2.95 to just below 4.00 in a little under a month. I think this chart says it all:
RED = Meal curve from 9/29
ORANGE = Meal curve from 10/29
So where do we go from here? I think we will test the highs in corn, near 380. If that gets broken, the front month contract will most likely run into its gap up near 412. After seeing the bean market tear higher over the last few weeks, I wouldn’t be shocked to see a test of the 1 year moving average up near 430 and the trend above that. I believed that the market would have bottomed out by testing that low twice, but apparently the market is on a hunt for that high before that happens.
For beans, well beans look like they are going to test the upper part of the medium term trend line before heading lower. At this pace, it might be before Friday. If the medium term trend line gets broken, were probably off to the races toward the 1 year moving average and then the LONG term trend line up near 1250. For that to happen, I think we need to see South American problems.
Now, be careful and watch the meal. Meal is what’s driving this and if it would be solved sooner rather than later. Prices held below 400 again, as beans pushed through 10.40. I think meal probably makes a new high above 410, but it will probably be quick. Look back at each rally, prices were strongest right before the end.
Whatever you do, don’t panic. If you are hedged and the liquidity is drying up, liquidate and sell product. You can always re-own with a call. Remember, the USDA comes back next week with what many feel will be another yield hike. At this point I don’t know if it matters as it won’t help the logistical problems, but it might change the story.
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