Technically Speaking

If you live in the U.S. Plains or Midwest, most likely you are going to see a blizzard this week. Forecasts are calling for north winds of 50 mph or so, and snow totals ranging from 4 inches to as much as 2 feet. Unless you have livestock to tend, you'll probably spend Groundhog Day (Tuesday, February 2) burrowed in your den, afraid to poke your head out and see 6 more weeks of winter.

All the possible time in the house will give U.S. grain producers time to ponder what has become a February anomaly. A quick look at 5-year and 10-year seasonal indexes (based on weekly closes) for new-crop December corn and November soybean futures shows us nothing spectacular over the month of February. But if we zoom the telescope in a bit tighter and focus on daily closes for both contracts during the month, something UDSA's Risk Management Agency (RMA) does to establish initial crop insurance prices, we something dramatically different.

Before discussing the results, remember that the lasts three harvests for both corn and soybeans have been the largest on record for both. Therefore the 2013 production figures of 13.829 bb (corn) and 3.358 bb (soybeans) would have carryover influence on the 2014 new-crop contract prices, 2014 production of 14.216 bb and 3.927 bb affecting 2015 contracts, and 2015 production of 13.601 bb and 3.930 bb influencing 2016 futures contracts. Though it is a small sample size, we have the two years of data to project what could be seen in 2016 new-crop futures during February.

Logically, one would think that record production numbers the previous year would weigh on the next year's new-crop futures contracts. But, as has been proven time and time again, logic doesn't have much to do with futures markets.

For example, using the change between the last daily close of January and the last daily close of February for both 2014 and 2015, December corn has gained approximately 4%. Soybeans have been a bit more impressive averaging a gain of 5% during February. And since RMA uses the average daily close for the month, monthly averages have been 3% above January's last daily close for both corn and soybeans. In 2016 the Dec corn futures contract closed January at $3.93 1/4 while Nov soybeans were priced at $8.93.

Let's look at what the last two years might mean for corn first. Based on its $3.93 1/4 close, the Dec 2016 futures contract would be projected to see a high daily close in February of approximately $4.09, and an average daily close for the month of $4.05. From a technical point of view, Dec corn has a possible target near $4.10 on its daily chart. This price marks the 50% retracement level of the downtrend from $4.46 3/4 through the recent low of $3.74 1/2. This would seem to line up with the high projected by the last two year's activity, except for....

According to December corn's daily stochastics (short-term momentum study) the contract is already in an overbought situation. This technical indicator would seem to hint at renewed selling to hit the market over the coming weeks. On the other hand, the contract's weekly chart is more bullish after posting a new 4-week high last Friday. Recall that in the grand scheme of technical analysis, weekly patterns can override daily and monthly trump weekly.

As for November soybeans, its final January close of $8.93 would project to a February high daily close of $9.38 and an average daily close of $9.20. The contract's daily chart shows a possible target all the way up at $9.40, the 67% retracement level of the previous downtrend from $9.85 through the low of $8.50. As with corn though, daily stochastics are already near the overbought level of 80% suggesting the recent run of buying interest could soon come to an end. But also like Dec corn, the weekly chart for Nov beans grew more bullish last week as it too posted a new 4-week high of $8.96 1/4.

As we move into February, the weather is expected to remind us with no uncertainty that it is indeed still winter. Settle in, maybe watch the movie "Groundhog Day", and wait to see if new-crop corn and soybeans don't relive the same patterns seen the last couple of years.

P.S. This is one of the few Technically Speaking blogs to not have an attached chart. I wrestled with it for a while, but finding a way to show all the data in a readable form was beyond my comprehension on a beautiful Sunday afternoon that looks to be the calm before the storm.

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