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Old crop (July) soybeans hit an eight month high after appreciating just better than $2/bushel, high to low, over the last four weeks. And volatility has not been lacking, with an average 44 cent daily trading range over the last several sessions.

It appears the bulls are starting to lose control. Long upper wicks, on several recent candles, show that we haven't been able to hold onto intraday gains. A 61.8% Fibonacci retracement has taken place to the upside, but futures are stalling just above the psychological $15/bushel level. Also, stochastics are starting to roll over, confirming my hunch that legumes may be ready for a break lower.

While I am not calling for a bear market… I think we could see futures retreat 40-60 cents. Use the 50% and 38.2% Fibonacci levels as downside targets. Beyond the technical… let's see what factors could weigh heavy on bean prices in the coming weeks.

(click to enlarge)

A number of fundamental factors are potentially bearish for soybeans:

1) Potential profit taking after a 12% appreciation.

2) Improving weather conditions in key growing areas. Previously, a weather premium was likely built into the market on reports of poor weather. Favorable weather means this should be worked off prices.

3) China was rumored to have canceled some of its recent purchases.

4) A well-followed, private oilseed analyst expects Brazilian soybean exports to be very large. Estimates are coming in at 8.7 to 9 million tonnes (Jan-May), up from 7.3 million last year. If shipments are soon confirmed at these levels, this would represent a significant jump in export pace, being up better than 10% over the same period last year.

As for trade recommendations, I like buying outright put options or ratio spreads in July, August or September contracts. More aggressive traders could gain bearish exposure via short futures, simultaneously selling put options 1:1. You should be better off selling further dated puts, as you will collect more time value. Try collecting, in premium, an amount equal to what you're willing to risk… be it 15 cents, 20 cents or 40 cents.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Source: Commodity Chart Of The Day: Soybeans - Legumes Should Break Lower In The Coming Weeks