In our initial look at the November soybean contract (February 13, "New-Crop Nov Beans Turn Bullish"), I talked about how the contract had recently moved to a new four-week high, confirming the uptrend indicated by the bullish crossover by weekly stochastics. Initial resistance was pegged at the 38.2% retracement level of $11.81 3/4, with bullish fundamentals indicated by the weak carry in the November to January futures spread hinting at an extended rally to the 50% retracement level near $12.10 3/4.
Since then the contract has only grown more bullish. The aforementioned spread has seen its carry whittled to less than 4 cents, covering about 30% of full cost of carry (total cost per bushel for holding grain in commercial storage).
The interesting thing is hypothesizing on where the commercial support might be coming from. Keep in mind that early estimates are for soybean planted acreage to increase by 3 million from last year, setting the stage for a possible record crop on the heels of what is expected to be monster production out of South America. But a funny thing happened on the way to the poor house (for November soybeans), the December corn contract decided to rally to near $5.00. If and when the U.S. growing Midwest thaws out, corn planters will start to roll and may keep on going well past the expected 92 million acre mark.
The other bullish fundamental factor could be beginning stocks. USDA's March Supply and Demand report projected 2013-2014 ending stocks at 145 mb, but coming in this high could take a dramatic and immediate cessation of U.S. exports. If not, this number could be whittled back another 10 mb to 15 mb by the May report ("first" look at 2014-2015 supply and demand).
Given the bullish commercial outlook of the new-crop forward curve (series of futures spreads) a 50% retracement is becoming more likely. In fact, it doesn't take much imagination to see November beans pushing to between the 61.8% and 67% retracement levels, setting a target range of $12.39 1/2 to $12.51 1/2.
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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.