Technically Speaking
Darin Newsom DTN Senior Analyst

Tuesday 01/21/14

March Beans: Bad Day at Black Rock

Depending on one's point of view, calling Tuesday merely a "bad day" for soybeans could be an understatement. After posting a high of $13.30 1/2 last Thursday the March contract has fallen, and fallen hard. When the dust settled to start this week, the contract was down 36 cents and within shouting distance of the same trendline support discussed last week (January 13, "Soybeans Slide to Trendline Test"). As we wait the start of the next trading session Tuesday evening, the question is if trendline support will hold this time around.

Source: DTN ProphetX

In the big picture, Tuesday's sell-off didn't change much in regards to the soybeans. Daily stochastics (second study) remain neutral, indicating the contract remains in a minor (short-term) sideways to up trend. The inverse in the March to May futures spread (bottom study, green line) is showing a solid 16 1/2 cents despite losing 2 3/4 cents over the course of the session.

The real problem with soybeans may be psychological. There is an old adage that says, "A market that can't rally, won't rally". This may be applicable to soybeans. With the monster crop from South American drawing closer, the soybean market has had its normal six month window of opportunity - from September through February - to post a rally based on continued tight domestic supply and demand.

Yet, for the most part, the March contract has been stuck in a sideways pattern between $13.77 3/4 (week of September 1, 2013) and $12.33 1/4 (week of November 3, 2012). Admittedly this is a wide trading range for a sideways trend. But the contract seemed capable of so much more given its bullish commercial outlook (inverted forward curve) and continued buying from noncommercial traders (increasing their net-long from 111,738 contracts to 176,981 contracts).

Where does the contract go from here? Initially it looks like another test of trendline support, calculated Wednesday near $12.77 3/4, is imminent. From there, given that the last clear signal on daily stochastics was bullish (crossover on January 10, 2014 below the oversold level of 20%), the contract could make a run at its recent high. However, the series of lower highs might not make market bulls feel that much better longer-term.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.

Posted at 3:05PM CST 01/21/14 by Darin Newsom
Comments (6)
Yesterdays sell off was in part due to maybe a cancellation of Chinas purchases. How can they just cancel a purchase?
Posted by FRANK FULWIDER at 7:31AM CST 01/22/14
Darin will explain further, but I'm sure it was a purchase that was bought at a lower price. Therefore, they cancel it, and collect the profit (of course after a "fee" is deducted). I may be mistaken, but I don't think they can or do trade outright on the CME/CBOT. But they have willing trade partners in the cash trade.
Posted by Brandon Butler at 8:19AM CST 01/22/14
You are correct Brandon, if a cancellation did occur it was on a cash purchase. However, as I talked about in Early Word Grains, this shouldn't be viewed as overly bearish. Recall that total reported sales commitments (weekly export sales) are already at 1.523bb as compared to USDA's demand projection of 1.495bb, making it almost inevitable that cancellations will be seen.
Posted by DARIN NEWSOM at 8:49AM CST 01/22/14
Am I correct in saying that this is defacto trading, i.e. speculating, by the Chinese?
Posted by Brandon Butler at 10:33AM CST 01/22/14
Maybe, in a way. Could also be viewed as CYA trading (Cover Your...) by Chinese buyers. Purchasing early and often guarantees later supplies. Then if SAm beans are as plentiful as expected, prices become more competitive, and cancellations of early purchases tend to occur.
Posted by DARIN NEWSOM at 11:01AM CST 01/22/14
That makes sense. And in the larger view, if they bought 100 million bushels a buck too high, what difference does it really make? Your CYA scenario is in essence a hedge (against running out of food, keeping civil disobedience low, et al). I'm sure their government throws around a 100 million about like ours does. A few fighter jets....big deal. Or enough for 57% of the budget of the latest "appendage" budget we heard about in the U.S.
Posted by Brandon Butler at 11:08AM CST 01/22/14
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