Soybeans have entered that odd time of year when the November contract plays the dual role of covering both old-crop and new-crop activity. Dwindling open interest in the August and a general lack of enthusiasm for the September puts more old-crop commercial attention on the November contract over the last 6 weeks of the marketing year.
Despite continued bearish weather forecasts (conditions generally viewed as favorable for the growing crop) the November contract has rallied off last week's low of $10.65. Much of the support has come from the commercial side of the market, indicated by the weakening carry in the November to January futures spread (second chart, green line).
Why the renewed commercial buying interest? First, the tight old-crop supply and demand situation was not solved by USDA taking residual use to (-69) mb in its latest supply and demand report. While it makes the columns on paper come out even, finding those additional 70 mb could prove to be difficult. This sets the stage for the carry in the November to January futures spread to possibly be whittled back to its previous peak of 6 cents (week of June 23).
Also, new-crop soybean export sales continue at a brisk pace with another 26 mb (708,000 mb) announced early Thursday morning. Questionable beginning stocks combined with still strong pre-marketing year demand could offset some of the bearishness tied to continued projections of record crop production.
As for price potential, the November contract has a window of opportunity between the July and August USDA reports to go up and close its bearish gap (top chart, red circle) left at the beginning of last week. Notice that the high side of the gap ($11.32, the low from the week of June 30) is near resistance at $11.36 1/4, a price that marks the 33% retracement level of the sell-off from $12.79 through last week's low.
With the existing carry in the November to January spread of 8 1/4 cents representing a neutral to bearish level of total cost of carry (approximately 53%), this short-term rally could be checked by the 33% retracement level with only an outside chance of extending to the 50% retracement level of $11.72.
Finally, weekly stochastics (third chart) remain bearish. While not trumping a possible commercial led rally, this technical momentum study needs to see a bullish crossover below the oversold level of 20% to confirm a move to a secondary (intermediate-term) uptrend by the November contract.