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The bearish argument for soybeans

Agriculture.com Staff 04/21/2008 @ 9:14am

After recorded high prices in February, soybean futures have been in a volatile and emotional trading pattern since. November futures posted a bearish key reversal on March 4, peaking at $14.66, prices then rapidly fell apart, pushing through supportive moving averages before finding a low on April 1 at $10.60. Since then, prices have rebounded and managed to climb above the $13 mark early this week.

From a chartist's view, after the bearish key reversal, November futures were positioned to make a downward price move from an uptrend started in August. This downward retracement did occur with 62% of the up-move. Recently, prices rebounded from April 1 until peaking this week posting another 62% retracement, this time upward. Our point: while the market volatility has been high, some basic technical patterns have developed. Currently, a head and shoulders pattern is developing, suggesting lower prices.

In January, November futures peaked near $13 and then slid nearly $1.50 before making a rally upward to new highs and forming a head in February. Currently, the right shoulder appears to be forming. From our standpoint, if November futures decline and break neckline support near $12, then a move of more than $2.00 downward from $12.00 to $9.50 is forecasted.

Is a move to $9.50 possible? In December, beans were priced at $9.50 before knowing what South America's crop would yield. It now appears that South America could have record bushels. An increase in U.S. bean acreage was indicated on the March 31 report, so it is conceivable and likely that November bean futures could target $9.50.

Charting for price projections is more of an art than a science. The studies we presented in this perspective suggest downside price movement for beans. However, weather will be the dominant factor for price direction. So while charting is helpful and may provide an objective or insight for where prices may go, the market will focus its attention on crop prospects. Normal weather and crop conditions point to lower prices. Adverse weather and all bets are off. Are you ready?

If you have questions or comments, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM ext. 129.

After recorded high prices in February, soybean futures have been in a volatile and emotional trading pattern since. November futures posted a bearish key reversal on March 4, peaking at $14.66, prices then rapidly fell apart, pushing through supportive moving averages before finding a low on April 1 at $10.60. Since then, prices have rebounded and managed to climb above the $13 mark early this week.

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