When Will Range-Bound Soybeans Break Out?

In the grain markets 2013 ended with a whimper and has continued to whimper through January. After a phenomenal harvest in North America, especially after the drought of 2012, both the corn and wheat markets remain mired in long-term bear markets. Soybeans have held on to maintain contact with the teens…more on that later.

Corn, especially, has been grinding lower within a tight range; its average true range on the daily charts has dropped below six cents a bushel. Chicago wheat has lost a dollar per bushel in the past two months thanks to large global stocks and a lack of strong demand. Technically, Chicago wheat is vastly oversold and can’t seem to bounce higher despite the threat of Midwest winterkill and recent purchases from the Middle East and Asia.

Soybeans Avoid the Doom and Gloom

Soybeans have managed to defy gravity, or at least stave off a full-blown bear market. The reasons cited are innumerable, with shear demand for North American soybeans as the prime culprit. Soybean orders for the current marketing year remain far ahead of the USDA estimates and the rates of the recent past. Traders keep expecting to see cancellations with the South American harvest around the corner but that isn’t happening, keeping prices buoyed.

Regardless of the reasons, the price tells the story.

After the front-month soybeans contract touched $14 a bushel during the end of August, it has settled into a dollar range between $13.50 and $12.50 per bushel. The bulls and bears are fighting for control and lately the bears have managed to keep the price below the teens with eyes toward a big South American crop. Recent rains in Argentina have calmed fears about heat-stressed soybeans and initial harvest reports from Brazil are pointing to expectation-beating yields.

The potential symmetrical triangle forming on the weekly soybean chart suggests a breakout coming soon.

The potential symmetrical triangle forming on the weekly soybean chart suggests a breakout coming soon.

Each week I keep thinking soybeans will give way to the 11s, but each week a new bullish storyline emerges, including:

  • The Devaluing of Argentina Pesos: With double-digit percent loses in the currency, Argentinian farmers may be reluctant sell soybeans.
  • Lack of Improved South American Infrastructure: South America has emerged as the world’s top soybeans exporting continent, with Brazil at the top. However, the ability to physically export the increasingly larger crop each year has not kept pace. Last year buyers waited months to get their beans thanks to logistical issues at Brazilian ports. The USDA attaché in Brazil called the logistical improvements “marginal” – not exactly instilling confidence in global soybean buyers.
  • China Using Soybean Import Contracts as Loan Collateral: Due to tightening credit markets in China and the government cracking down on shadowing banking, DTN’s China correspondent Lin Tan, speculates that private companies can gather “credit from the bank much easier by using soybean import contracts as collateral because it’s normal import business.” He estimates that China may cancel 73.5 million bushels worth of soy, but so far that hasn’t materialized.
  • Threat of February Dryness: Although South American growing regions have experienced solid rains lately, there remains risk premium in the market should the weather turn dry.

Despite these recent developments, longer-term data remains bearish. Oil World told Bloomberg World production of soybeans will be 287.8 million tons, up from an estimate in December of 287.6 million tons. Furthermore, the spread Between North and South American soybean prices provides a dollar-per-bushel discount for those buying from Argentina, for example, versus the U.S.

Heading into the next few months, I maintain a bearish bias looking for a downside breakout below the $12.50-60 range. However, should the situation continue to evolve and gain bullish momentum, I’ll be looking to enter above the December highs of $13.50 should we get there.

For now, I will sit tight and wait for the breakout.


The Top 10 Handles for Grain Futures Trading on Twitter

Want to stay up on real-time news and data for agriculture futures? These 10 pros on Twitter are a great place to start.

10) Angie McGuire (@GoddessofGrain) – The Goddess of Grain is VP of Grains for Citizens LLP and is guaranteed to provide a few chuckles. She mixes in her grain market tweets with plenty of sass and humor. She often has her ear to the ground concerning the rumors and chatter that surround the cash basis for grains, which at times can be useful for tracking price in the futures markets.

9) Agriculture.com (@Agriculturecom) – Agriculture.com is a superb media property for tracking the daily market movements of soybeans, corn and wheat. Its Twitter handle provides a useful method for staying up on the site’s freshest, most important market commentary. They have a reporter on the CBOT floor who provides play-by-play commentary of the action in the pits.

8) Dave Fogel (@ATI_DaveFogel) – David brings nearly 30 years of agriculture risk management experience to his Twitter account and it shows. Based in Bloomington, Ill., he stuffs his Twitter stream with updates on grain basis and insights from across the globe I wouldn’t otherwise know about. His no nonsense approach to Twitter provides breezy, easy-to-understand summaries of what matters most to grain buyers and sellers—vital information for any grain trader.

7) Gavin Maguire (@RtrsAgAnalyst) – Gavin is an agriculture columnist and analyst for Reuters who is a big picture thinker with gorgeous fundamental grain charts to match. For example, for the January 10 USDA report, he posted on Twitter a graph of the daily corn, wheat and soybean markets reactions to the report dating to 1986. That’s great stuff you won’t find easily for free.

6) Julianne Johnston (@julijohnston) – I’ve discovered that grain market analysts are primarily male, but that doesn’t stop Julianne from providing some of the best market commentary and insight around. Working for Pro Farmer, she is always there to provide timely export, cash basis and insights from around the Pro Farmer ecosystem. When its crop report time I make sure to keep close tabs on her handle for updates.

5) Jason Britt (@jasonlbritt) – This broker out of Missouri isn’t afraid to call it likes he sees it, providing an inside look at the psyche of a trader. He also shares the wealth, posting timely articles and keen insights from other industry experts. Topics include the weather and juicy rumors from his network that would be otherwise impossible for outsiders like me to ever hear about.

4) Tregg Cronin (@5thWave_tcronin) – A self-described “futures trader/technician/production ag/Canadian whiskey advocate” from South Dakota, he provides very unique and in-depth analysis of all types of agriculture products from the traditional grains to farmland prices to milk futures. Anyone curious about smaller agricultural markets best pay attention to Tregg’s tweets.

3) Bryce Anderson (@BAndersonDTN) – During the great Midwest drought of 2012, I was glued to Bryce’s Twitter feed. He is the senior agriculture meteorologist for DTN and provides real-time updates on weather patterns and forecasts for the world’s important grain growing regions. He does not tweet every day but when he does Tweet, I never fail to take a look.

2) Darin Newsom (@DarinNewsom) – Based out of Omaha, Nebraska, Darin is arguably the most talented pure writer out there I’ve found covering the grain markets. Equally versed in fundamental and technical analysis, his “technically speaking” blog is can’t miss stuff. From time to time he will also provide insightful technical analysis on outside markets, including oil and gas. Although a lot of his content resides behind a firewall at the DTN Progressive Farmer website, he provides plenty of invaluable information for free via Twitter.

1) Arlan Suderman (@arlanFF101) – When it comes to the grain and cattle markets, Arlan is your guy on Twitter. Not only does he provide superb information on what he is seeing for corn, soybeans, wheat and cattle, he does so seemingly effortlessly and immediately. He is the one I turn to first when the latest USDA report crosses the wire. As a senior market analyst for Water Street Solutions, Arlan is primarily focused on fundamentals and leaves some of the hardcore technical charting to others.

Honorable Mentions

There are way more than 10 great follows on Twitter for grain traders so I encourage you to also check out @IndianaGrainCo, @StandardGrain, @WhiteWheatTweet, @morrisonmkts and @TonyRohrs to name a few more. They all provide great insight into what’s happening in the markets.

Who do you recommend following on Twitter?

Tuesday Links: The Ultimate Cheat Sheet for Selling Anything

Some items you may find interesting this morning…

Futures Links

Time to buy coffee? Many traders have scalded themselves trying to catch a bull trend (DragonFlyCap)

Fed introducing plans to limit banks’ commodity activities (Bloomberg)

China continues to buy U.S. soybeans despite the looming Brazil harvest (Agriculture.com)

The Vampire Squid calls crop futures a bad bet for 2014 (Agrimoney.com)

WTI crude looking at its worst start to a year since 2009 (Bloomberg)

Sugar stares down a four-year low (Investing.com)

Other Fun Stuff

Did you know that dating to 1990 the S&P 500 has dropped one percent an average of 32 times a year? In 2013 it did so 17 times (Avondale Asset Management)

The ultimate cheat sheet for selling anything (James Altucher)


Tuesday Links: Corn’s 2014 Outlook; Brazil’s Crude Oil Industry Faces Reality

Content you may find interesting on this bone-chilling morning across the USA…

Futures Links

Coffee breaks out (Inside Futures)

World’s largest banks see steady to lower corn prices this year (Agrimoney.com)

Brazil’s crude oil plans hit reality (Washington Post)

ICE cuts its soft commodity trading hours, starting February 3 (WSJ)

Farmer survey suggests smaller North American soybeans, corn crops (Farm Futures)

Other Fun Stuff

CNN Poll finds majority of Americans want to legalize marijuana (CNN)

New Year’s trading resolution: keep it simple, stupid (SMB)

An oath to manage your trading biases (Andrew Grimes)


Thursday Links: You know what’s cool? $2.3 billion…

Articles for your reading enjoyment…

Futures Links

Sugar falls to 3.5-year low on a strong downtrend…pretty impressive (Business Recorder)

Despite strong prices, soybean acreage to increase by smaller-than-anticipated margin (Agrimoney.com)

Commodity investors rush for the exits to the tune of $88 billion in fund outflows (Financial Times)

Gold hangs by a thread around $1,200 an ounce (Bloomberg)

Other Fun Stuff

The 10 best performing stock markets of 2013…Zambia anyone? (Business Insider)

Playing nice before the Olympics, Putin pardons former oil tycoon (Washington Post)

A story about short selling (Joe Fahmy)

You know what’s cool? $2.3 billion… (Business Insider)


Tuesday Links: Oil Boom Revives North Dakota Ghost Towns (Photos)

Australia looks to boost fracking (Informa)

Cocoa quietly up 26% this year, one of the top commodity performers (Bloomberg)

Is this the week WTI crude inventories finally shrink? (Binary Tribune)

Analysts turn bearish with soybeans contago (Ag Web)

Oil boom revives North Dakota ghost towns: photos (Daily Mail)

Quant hedge funds go up in smoke; blame the markets (Economist)

Bernie Madoff’s former finance chief rats out ex-colleagues for a reduced sentence (Bloomberg)

Scientists attempt to print a 3D heart from human cells (The American Interest) …I firmly believe 3D printing is the most disruptive technology since the internet.


The Soybean Dilemma: Beans in the Teens No More?

Despite the third largest North American crop on record and an anticipated strong South American crop, soybeans remain the bullish leader of the grain complex with the January contract hanging around the $13.30 per bushel range. Notwithstanding the yield recovery following the drought last year, soybeans prices have lost just 5.5 percent. In comparison corn has trimmed 40 percent.

‘Beans in the teens’ as the phenomena is often described in trading parlance, usually denotes bullish price action often associated with supply issues and weather scares that push prices to $13 a bushel and higher. This year farmers experienced more favorable weather and a strong bounce in overall yields despite a mid-summer weather scare. The dry August added risk premium to the market and sent the front-month contract price of $11.65 in August to a high of $14.09 per bushel a month later. In the end, the dryness had limited influence on the crops and prices drifted lower into the fall.

The trend turned bullish again after the WASDE report on November 8. Soybeans shot up 30 cents in one day despite the fact the department raised its average yield-per-acre estimate 1.8 bushels above its September guess. The one percent decrease in total acres harvested offset the gain in yields, generating what many analysts called a neutral report. In hindsight, that report was bullish as the USDA appeared to massively underestimate demand.

China’s Insatiable Appetite for Soybeans

Despite the fantastic harvest in the Midwest, prices remain elevated and industry insiders point to China. Unlike corn or wheat, there are few sources for soybean exports. The U.S., Argentina and Brazil provide the vast majority of the world’s supply. Watching a rapidly depleting pile of soybeans available in the U.S., the Chinese are either unwilling or unable to curb purchases until the South American crop details emerge.

Grain analyst Dave Norris thinks China isn’t taking chances for fear of a delayed crop in South America and logistical problems exporting beans from the continent. After the last harvest, ships waited as long a month to pick up shipments in Brazil ports. Norris told Bloomberg that sales and shipments since the marketing year began September 1 totaled 36.79 million tons, 93 percent of the total the USDA expects to export in the full season.

The reality is China may not have a choice. The Chinese middle class is larger than the entire population of the U.S., and as China continues to grow its economy the average citizen can afford to eat more protein. China must continue to import record amounts of grain to match the rising affluence of its populous.


Brazil ports lack the infrastructure to match export demand

Brazil ports lack the infrastructure to match export demand

Will Prices Finally Fall?

Should the South American crop grow as planned, the increased supply may finally squelch the record demand. Societe Generale (SocGen) and broker RJ O’Brien told Agrimoney.com that the high soybean prices relative to corn will push South American farmers to take away corn acres and plant more beans. By June, SocGen predicts soybeans prices will hit $11.50.

I am not in the prediction game, but for prices to fall significantly, a lot must go right in South America this growing season. The fall harvest in North America went as well as one could hope for yet we still have beans in the teens.

For the bears, they can take solace in contango. Today, the market believes future soybean prices will dip below $13 when the May contract comes off the board. Keep an eye on spreads as we close in on the next South American harvest for clues on the market’s direction.