Technically Speaking

Ag Markets: Monthly Analysis

Source: DTN ProphetX

Corn: The nearby contract closed 2.00cts higher. After posting a new low of $3.47 3/4 in August the nearby futures contract was able to rally to a higher close. Last month's low was a test of major (long-term) support at $3.43 1/4, a price that marks the 67% retracement level of the sideways trend from $2.90 through the high of $4.50. This range was established from December 2008 through June 2009. Weekly stochastics remain neutral given the initial bullish crossover below the oversold level of 20% at the end of March 2014. A secondary bullish crossover, possible at the end of September, would signal a move to a major sideways trend, if not the beginning of an uptrend. Weekly CFTC reports showed a slight build in the noncommercial net-long futures position during August. Possible downside risk remains a test of the previous low of $2.90 while waiting for the establishment of long-term bullish signals.


Soybeans: The nearby contract closed 57.75cts lower. The major (long-term) trend remains down. Major support remains at $9.91 1/2, a price that marks the 61.8% retracement level of the previous uptrend from $4.98 1/2 (February 2005 low) through $17.89 (September 2012 high). Below that is the 67% retracement level of $9.28 1/4. The market's 5-year and 10-year seasonal indexes would indicate a test of the $9.91 1/2 mark through the close the first week of October. Noncommercial traders added to their net-short futures position in August, a factor that could eventually be viewed as bullish if this group begins a round of short-covering buying. The market's forward curve continues to indicate a neutral long-term view of supply and demand.

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Wheat: The nearby Chicago contract closed 20.00cts higher. The major (long-term) trend remains sideways to up. Monthly stochastics established a bullish crossover below the oversold level of 20% at the end of February 2014, a move that led to an initial 50% retracement of the downtrend from $9.47 1/4 (July 2012 high) through $5.50 1/4 (January 2014 low). The subsequent sell-off to a new low of $5.16 1/4 (July 2014) is characteristic for wheat, followed by a move back to its previous low at the end of August. Given the still bearish view of supply and demand indicated by the strong carry in the market's forward curve, the upside target remains between $6.82 1/2 and $7.48 3/4, the 33% and 50% retracement levels of the previous downtrend. Support could come from continued noncommercial short-covering, with this group trimming their net-short futures position during August.

Cotton: The spot-month contract closed 3.70cts higher. The major (long-term) trend is sideways. The last major (long-term) signal posted by monthly stochastics was a bullish crossover at the end of July 2012 as the more active contract rallied off its June 2012 low of 65.57. Since then the market has been in a sideways trend before posting a spike low of 62.87 in July 2014. August saw the December contract rally back above the July 2012 low, reestablishing the major sideways trend. The structure of the market remains bearish with noncommercial traders adding to their net-short futures position in August while the forward curve continues to show a strong carry (bearish view of supply and demand). This could limit buying interest in cotton over the coming months.

Live Cattle: The nearby contract closed 5.90 lower. The major (long-term) trend is down. Monthly stochastics posted a secondary bearish crossover above the overbought level of 80% at the end of August, confirming the bearish crossover at the end of March 2014. Initial support is now pegged near $133.85, a price that marks the 33% retracement level of the previous major uptrend from $79.975 (March 2009 low) through $160.75 (July 2014 high). The combination of less bullish futures spreads (market's view of supply and demand) and continued noncommercial long-liquidation (this group reduced their net-long futures position in August, the fourth consecutive month this was seen) could eventually lead to a test of the 50% retracement level near $120.35.

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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.

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Freeport IL
9/2/2014 | 11:53 PM CDT
Higher dollar may not be sign of "higher" interest rates to come. Deflation is the sin the Fed has no/minimum control over. Policies were developed to keep deflation at bay. Low interest rates are the result of those policies. The goal is to have some inflation so they can manage/control economic growth. Commodity prices are not raising - no inflation there. Employment has bounce back but wage inflation does not seem to be occurring. France's failed policies along with trade problems with the Russia may be making the dollar a flight to "safety" play. Folks may be moving away from future EU problems. The Fed may "back off" but until commodities, inventories and/or wages have a solid move up interest rates will remain "low". A quick return to "higher" rates could/would "kill" what has taken the Fed 7-8 year to correct. Regardless of the cause and/or effect, if other markets have exportable supplies, a stronger dollar reduces our exports chances - transportation cost is also part of landed cost. Freeport, IL
Freeport IL
9/2/2014 | 11:53 PM CDT
Higher dollar may not be sign of "higher" interest rates to come. Deflation is the sin the Fed has no/minimum control over. Policies were developed to keep deflation at bay. Low interest rates are the result of those policies. The goal is to have some inflation so they can manage/control economic growth. Commodity prices are not raising - no inflation there. Employment has bounce back but wage inflation does not seem to be occurring. France's failed policies along with trade problems with the Russia may be making the dollar a flight to "safety" play. Folks may be moving away from future EU problems. The Fed may "back off" but until commodities, inventories and/or wages have a solid move up interest rates will remain "low". A quick return to "higher" rates could/would "kill" what has taken the Fed 7-8 year to correct. Regardless of the cause and/or effect, if other markets have exportable supplies, a stronger dollar reduces our exports chances - transportation cost is also part of landed cost. Freeport, IL