The easy money has been made on November soybeans longs, in my opinion. I am not calling for a top and do think futures will work higher, but the risk is increased as futures have advanced 19% in the last three weeks, lifting futures near 11 month highs. Perhaps a better play is buying other crops that should trade higher alongside beans. A rising tide should lift all boats.
So why are legume prices appreciating?
Ø The Brazilian real may have found a bottom and has started to appreciate in recent sessions.
Ø Blistering hot temperatures across the Corn Belt with no precipitation forecast in the immediate future.
Ø Dry July and Augusts in years past have led to a below trend line yield in soybeans and with crop progress out today, the market is expecting a further 2-3% decline in conditions today.
Ø Most recent COT shows funds adding length in bullish trades.
Ø Technically, a trade above $14/bushel there is little upside resistance for another 50 cents/bushel.
Let's take a look at December corn and December wheat and have a game plan.
After finding support just below $4.50 bushel two weeks ago, corn has rallied 50 cents/bushel, lifting futures to $5 for the first time in the month of August. As of this post futures, are approaching a daily limit move, higher by 6% and above the 50 day MA (blue line) for the first time since 6/27. Use the Fibonacci levels on the chart above to help guide trades. At this point I am not ruling out a 100% Fibonacci retracement, lifting this contract back near $5.70/bushel.
On the Midwest crop tour last week it appears lower production looks likely, and if this weather persists, it will likely hit yields as well. Like beans, managed money and funds were buyers of maize in recent sessions. Short covering is playing out and I think a trade north of $5/bushel will attract fresh buying.
$6.40 appears to be the line in the sand as multiple probes under that level were rejected in December wheat. Futures are currently 5% off the recent lows and trading above the 50 day MA (blue line) for the first time since 6/21. Wheat will look for guidance from other Ags and will follow them higher in the coming weeks, in my opinion. Use the Fibonacci levels in the chart above to help guide you. A key development today was a break above the down sloping trend line that has acted as resistance since mid-June.
At risk of sounding like a broken record, weather will play a factor and managed money and funds are getting more active. Exports have been relatively diminutive of late, but expect countries to book purchases in the next few weeks to avoid paying up in the coming months if this ascent in Ags really gets further legs.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.