Turnaround complete in soybeans?
Last week we talked about some technical formations in grains that appeared to be trying to turnaround the trends from down to up in grains. The corn daily upside reversal stands out on charts, as does the Chicago wheat weekly upside reversal. Soybeans had rallied against resistance, and now as of today are rallying to new recent highs, pushing to 3 month highs as this is being written.
Most impressive about this recent rally is it is coming at a time when spring planting progress is rapid, with corn planting at 19% complete Monday (vs. 9% normal), and moving even more further ahead this week with a window of opportunity early this week. The rapid planting progress applies to HRS wheat, barley, and most other crops as well as we have one of the nicer springs in recent memory. Typically, early planting leads to higher than trend yields, with some of the best yields ever coming off early planted years.
There is also not a lot of outside market support leading to the higher grain numbers, with crude oil, the dollar, and other outside markets not lending a lot of support to grains. So this rally is coming mostly from the grains themselves, with buying flooding in from funds who are anxious to get their hands on some grain ownership in their portfolios. This seems to be most prevalent in soybeans, where they have bought up against resistance marks the next leg up from $9.50, or at about $9.75-$9.80 Nov. soybeans. We are currently trading at the highest levels since January, with a strong uptrend rallying the market from just above $9 on March 31 to where we are today ($9.85). To make this kind of rally with little or no positive news out of South American or the US is impressive to say the least.
Producers may have to look at this as a selling opportunity as some point, as we could run above the critical $10 Nov. soybean area very quickly. Any sale above $10 soybeans we consider a good sale at Pro AG!
On the other hand, maybe we can make a bull case for soybeans:
1. China's economy is at a strong point, gaining 12% GDP in the most recent quarter, much more than most analysts had thought. That means its likely that demand from China will be stronger in the near term, pushing above projected export levels. Maybe China can gobble up a record South American AND record North American soybean crop!
2. The ash cloud from the Icelandic volcano that spread across Europe could have long lasting implications for crop production in Europe. We just know too little about the impact of ash in the atmosphere and the resulting crop production changes from weather impacts it might have in the long term. Could it cause a European cold summer, or a drought?
3. Crude oil continues to trade at around $85/barrel, a recent high in crude oil that continues to encourage use of alternatives like bean oil and corn ethanol for fuel. Perhaps the biofuels boom is not yet over?
4. The US economy may be recovering more quickly than anticipated. So far this first quarter seems to show a relatively strong showing that could indicate in no uncertain terms the recession is over.