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Technicals signaled latest rally

03/07/2014 @ 2:29pm

I am not an expert on using technical signals for trading commodities. As an old saying put it, I probably know just enough to be dangerous. I am familiar with some of the less complex technical signals as they apply to soybeans and corn. Consequently, the past week has been very interesting from a technical point of view.

I was at Commodity Classic last Thursday, the day soybean futures had a 50 cent trading range. It was interesting to observe the reaction of the people at the trade show that day to the wild volatility in the grain markets. Some were not aware of the sharp selloff late in the trading session. Others, questioned the reason for such a dramatic move. Individuals familiar with charting techniques called it a key reversal. They took it as an indicator that the highs were in for the grain markets. They theorized that prices would drop in coming sessions.

I studied the charts after the dust settled on Thursday. To my limited expertise, the action last Thursday did not meet all of the criteria of a key reversal. In order to be a true key reversal, prices need to trade into new highs, turn around and drop into new lows. Neither the soybean nor corn markets made new highs and new lows that day. To me, this indicated that prices would probably rebound and close higher in coming days. It did not take long. A week later, futures prices for all grains were higher than the close on February 27.

The question now is how high prices will get before turning around. The drop dead date of February 28 has come and gone. For those wanting to sell something, the concept of not selling in February is past. There is an idea that the biggest part of the spring rally many times comes during the first weeks of the rally. That does not mean it will be that way in 2014. Historic charts show the most likely time for the spring high for corn is early April. For soybeans, it is late April or early May. That only narrows the window a little!

Fundamentally, there is talk of shipping problems in South America. There is also talk of harvest being so late down there that their double crop grains will not get planted. In the USA, the probability of getting crops planted early is very low. It is too early for late planting to be a big factor in reduced yields. Nonetheless, the potential for good yields from early planting gets smaller with each passing cold day. 

Personally, I used the strength this week to make the first incremental sales of 2013 corn. The price was not what I usually hope for. However, it is 50 cents better than I could have gotten the last week of December. For those of you who are sold out of 2013 corn, March is historically a good time to be pricing new crop corn for the coming growing season. Now that crop insurance prices for this spring have been set, there is at least somewhat of an idea of what the risk levels will be in 2014.

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