After a firm start to the trading week, price sentiment changed quickly after talk that portions of Europe would shut down again due to a resurgence of COVID-19. This news spooked the stock market, causing the Dow to tumble over 900 points on Wednesday. Crude oil futures followed, on fears that another global pandemic shut down would lead to less fuel consumption. Add to it month-end position squaring and traders preferring to head to the sidelines ahead of the elections, and a wave of profit-taking washed over many commodity markets.
Funds take profits
Grain futures tested significant overhead resistance early in the week. Corn had short term resistance near the $4.25 level, with soybean futures having resistance near $11. With a lack of immediate friendly news to allow futures prices to clear those price resistance points, instead, prices went lower.
Fund traders had been long over 200,000 contracts of corn and soybeans. On Wednesday alone this week, it was estimated that funds sold just over 50,000 contracts of corn and 25,000 contracts of soybeans, sealing the deal on profits from long positions.
According to both the 5-year and 15-year price pattern, seasonally corn and soybean futures have a tendency to trade sideways to lower during the month of November. This makes sense as the last of harvest pressure is traditionally seeing grain not able to be stored at home, instead head to local grain elevators. Starting in December, trade then traditionally turns its attention to the ever important growing season happening in South America. This year, there is no room for South America to have an imperfect crop thanks to strong global grain demand and a smaller-than-expected U.S. crop.
Is the lower price action this week a fluke? The short term high? Or just an opportunity for end users to be able to secure grain needs on this price correction? The weekly price close for grains may leave us with the final answer.
For December corn futures, prices started the week with gains, trading at a high of $4.22-1/4 which beat last week’s high of $4.20. Last weekly low was $4.00-3/4, and so a close below $4.00-3/4 would be a bearish key reversal on a weekly chart.
For January soybean futures (yes I’m skipping November because it is about to go into first notice day and the delivery period) last week’s high was $10.86. This week’s high was 10.88-1/2. A close below last week’s low $10.48-1/4 would signify a bearish key reversal on a weekly chart.
A bearish key reversal would be a “text book” topping signal that might catch the attention of speculators and fund traders. While the fundamentals for grains right now are absolutely supportive, sometimes technical selling wins out in the short term. Especially with a major presidential election thrown into the mix, and global trade action will likely be extremely volatile in the coming weeks!
In hindsight, there were bullish key reversals back in August on both weekly corn and soybean charts. At the time, we didn’t understand why the market was bottoming .After all, there was supposed to be 3 billion bushel corn carryout. But the bottoming action stuck, and the news of horrible August weather and improved export demand sent prices soaring!
And now, is the corn and soybean market potentially providing a technical topping signal? It is all dependent on Friday’s closing prices. Fresh bullish fundamental news needs to show up quick, or technical selling and outside market influence may win out in the short term.
‘I can’t sell now, it’s a down market’
No thanks. Don’t be that farmer. Focus on the bigger picture; corn prices are still 80 cents off the lows! Soybean futures are still $1.75 off the lows. Shift your perspective! Are you wondering if you should sell some grain? Look at prices; there is currently no carry in the market. The market is still not paying you to store your corn or soybeans, so stop and be aware of the marketing opportunities in front of you.
You must manage both the risk and potential reward in the weeks and months ahead!
Grain fundamentals as still supportive due to a smaller U.S. crop and improved Chinese demand, but with the election and “COVID 2.0” resurfacing, the outside markets may have the short term influential win. Be vigilant.
Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and firstname.lastname@example.org
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