Home / Markets / Markets Analysis / Soybeans market / Time to sell soybeans

Time to sell soybeans

Agriculture.com Staff 01/09/2006 @ 9:00am

It's been a nice rally in the soybean market the past month. Since bottoming on November 28th at 5.55, March soybean futures have been on a good run higher. Although off from the highs of 6.30, March futures still are holding above 6.00 at 6.11 as of Friday's close.

Is this a rally that will continue or is now a prime selling opportunity? Here are four good reasons why we think it's time to be selling:

1) Fundamentals have changed little in the past month. Stocks of U.S. and world soybean supplies still remain at record levels. U.S. export business is lagging well behind last year's pace. The only supportive news is the dry conditions in South America, but their season is still too early to bank on a short crop. This rally has largely been technically driven and sings suggest the technicals are turning weak.

2) Speaking of technical market action, one-way technicians look for a market turning point is when prices make new highs, but technical indicator-like RSI or Stochastics-don't follow suit. When this happens it is called bearish divergence. The logic behind this is that the technical indicator measures market strength, so if prices are reaching new highs while the indicator moves lower, then the market is losing upside momentum and prices will revert lower. This technical picture has been forming over the past few weeks in soybeans.

3) With this futures rally, basis levels have traded mostly lower over the same period. Although futures are up 40 cents in the past month, basis levels are around 5 to 10 cents a bushel lower around the country. Futures rallies often lead to increased farmer selling and weakening basis, but this magnitude of basis drop seems like a sign of limited interest b y cash buyers in supporting this rally. In contrast, corn basis has actually been strengthening while corn futures have rallied.

4) New-crop soybean acreage for 2006 will probably take a big jump. Reduced anxiety about Asian Rust, higher fertilizer costs and relatively high soybean prices all suggest a favorable economic client for soybean production. At the end of March, we get the first report of new-crop acreage, so the clock could be ticking on $6.00 soybean prices.

Trade will definitely sway based on the latest weather reports from South America over the next two months, but we think factors favor a trend reversal. Prices will likely favor the downside as we approach spring planting.

It's been a nice rally in the soybean market the past month. Since bottoming on November 28th at 5.55, March soybean futures have been on a good run higher. Although off from the highs of 6.30, March futures still are holding above 6.00 at 6.11 as of Friday's close.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Markets Trade in Narrow Range