Canada Markets

A key reversal on a chart is rare. A key reversal on a monthly continuation chart is far more so and definitely worth taking seriously. In this case, soybean prices opened October on a sour note, gapping below the September low that prices closed near at the end of the previous month.

Then there was a combination of concerns -- about yield potential declining amid drought and disease pressure, and optimism over a trade deal with China. This resulted in a rally that took out the September high but also ended with the October close being virtually on the high for the month, at levels not seen in more than a year.

That type of technical action will gather far more interest and respect from traders than any fundamental debate, likely along with additional buying support.

As you can see on the accompanying chart, the down channel that had dominated the soybean market since the top in 2022 had finally been broken out of in April 2024. But escalating trade tensions between the United States and China took the wind out of the sails and pessimism about export potential resulted in multiple tests of support around $10/bushel. Estimates (including those from USDA) were for record-setting yields with added selling pressure the result. Then the positive turn of events in October resulted in support holding and a breakout of a 13-month consolidation range between $9.50 and $10.80 being seen (with prices currently over $11.20/bushel).

To wrap up the look at the technical picture, the shorter-term charts certainly help inspire confidence as well. Following the Oct. 25 weekend announcement of progress being made with China and that U.S. and China Presidents Donald Trump and Xi Jinping would meet, prices gapped up on the January daily soybean chart but also the weekly continuation chart.

Following such an extended consolidation period, they would be considered breakaway gaps. They are often tested with prices falling to try to fill the gap, but that isn't usually seen within four days. In this case it was when there was a lack of details in the wee hours of Thursday morning following the meeting, resulting in a sharp break in prices that did test the gap. Traders were willing to buy at the top of it -- not wanting to take a chance on missing out while waiting for a decline that would have filled the gap -- resulting in prices turning back up. Another bullish sign.

Then the details of the deal were released and prices surged, leaving not only the breakaway gaps fully intact, but marking a breakout higher from a saucer bottom on the January soybean chart -- another very strong sign of further gains to come. In general, the longer a saucer takes to form, the greater the upside potential. With this taking over 13 months, it suggests gains should be significant.

Looking for a target given the overwhelmingly bullish indications, the gap lower that was left at the start of trading in January 2024 would be a reasonable goal. It remains open from $12.9075 to $12.92/bushel with minor resistance levels found along the way at $11.50, $12.00 and $12.50/bushel.

Looking at the fundamental backdrop briefly, the 6-million-acre reduction in planted area set the stage for a tight supply. In September, USDA was still estimating a record yield of 53.5 bushels per acre (bpa) compared to the previous record of 51.9 bpa set in 2016 and last year's 50.7 bpa.

An intense, late-season drought along with disease pressure put that in serious doubt, but the government shutdown has prevented an update from USDA. That is supposed to change shortly as NASS just announced updated WASDE figures will be released Nov. 14, despite the shutdown. That may have traders expecting a cut in yield and production with the administration possibly showing concern that too many export sales may be made otherwise at relatively low prices given the overly optimistic outlook in September. Time will tell.

On the demand front, the debate has roared on for months about the possibility of other countries being able to make up for the lost export sales should China not return as a buyer. To date, exports have been very strong considering China's absence; but shipments are still only 6.7 million metric tons (mmt) compared to 10.6 mmt last year (without China's front loading). Now that the trade deal changes all of that, export estimates should increase significantly.

Regarding the details of the trade deal between the U.S. and China (that were just confirmed by the White House), China has agreed to buy at least 12 mmt (440.9 million bushels) of soybeans by the end of the year. That is to be followed by purchasing at least 25 mmt (918.6 mb) in each of the following three calendar years. To help accommodate that, China has agreed to remove all retaliatory tariffs on U.S. imported goods that have been announced since March 4 including those on all agricultural commodities.

So, from a technical perspective, it has been years since such a positive setup has been seen (in grain and oilseed markets) as currently found in soybeans. And as of now, fundamentals don't appear to be standing in the way with more clarity expected on Nov. 14.

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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