Heading into last Thursday's (March 28) Quarterly Stocks and Prospective Plantings reports, the talk was of sizeable increases in both corn and soybean planted area. In regards to the latter, pre-report estimates showed an average of 78.5 million acres as compared to the 77.2 ma on the books for 2012. Lo and behold, as the envelopes were unsealed that morning, the world found out that USDA wasn't quite as optimistic, putting expected planted acres of soybeans at only 77.13 million. That's right, almost 1.4 ma below the average pre-report estimate and even slightly below the previous year.
If November soybeans were trading in a vacuum, unaffected by other markets and contracts, the initial reaction to such a number would be that it is bullish and that November soybeans should be firmly entrenched in its seasonal uptrend. However, as the contract's weekly chart shows, the opposite is reality as November soybeans remains in a sharp downtrend.
This week's action has seen the contract move below a series of lows near $12.47. Note that these lows were near the 33% retracement level of the previous uptrend from the low of $9.19 (week of October 19, 2009) through the high of $14.09 3/4 (week of October 28, 2011). The next level of support is near $12.22 1/4, a price that marks the 38.2% retracement level. Also note that this price held a spike low the week of July 23, 2012 when the contract quickly fell to $12.25 1/4.
Not only has the futures contract remained in a downtrend since the release of what should have been a bullish report, but the trend in the November to January futures spread (second study, green line) has turned down as well. The carry has strengthened to almost 6 cents, still reflecting a bullish commercial outlook, from the 4 1/2 cent carry seen at the close the week prior to the release of the USDA report. A downtrend in the futures spreads reflects a commercial view that is either growing more bearish, or in this case, less bullish.
The fact that the spread is still giving a bullish reading (accounting for less than 33% of full commercial carry) means support at the 33% to 38.2% retracement levels should hold. If not, the contract should see no more than a 50% retracement level should occur putting key support near $11.64 1/2.
Weekly stochastics (bottom study) indicate the market is unlikely to fall that far, possibly establishing a low in the support area between $12.48 and $12.22. Both the faster moving blue line and slower moving red line are well below the oversold level of 20%, with both showing single digits this week. Given this scenario weekly stochastics tend to establish a bullish crossover indicating at the very least a move to a sideways trend.
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