Technically Speaking

November 2021 Beans: Toppy, or Just the Beginning?

Dana Mantini
By  Dana Mantini , Senior Market Analyst
The chart above reflects the daily chart for next year's new-crop November soybeans (2021). Soybean futures are currently embroiled in a demand and weather-led bull market and focused on this year's new-crop bean contract. The combination of large and consistent China demand and abnormal dryness in central and northern Brazil, along with massive fund buying, has fueled this surge. (DTN ProphetX chart).

November 2021 Soybean Futures:

The ongoing soybean bull market has certainly been led by November 2020 futures, which have rallied nearly $2.50 per bushel from the April low and $2.15 from the early August low. The surge in price has been driven by huge China demand and threatening extremely dry condition in parts of central and northern Brazil. Those factors have led to the nearly insatiable appetite on the part of speculative funds to own soybean and product futures.

In that same period, the November 2021 soybean futures have also soared, by $1.56 per bushel since April, and $1.00 per bushel since early August. That's a pretty nice rally for the futures which represent a crop that has not even been planted yet. The huge China demand for U.S. soybeans, along with the drought in parts of Brazil have been the bullish drivers. With soybeans in Brazilian reals currency at the highest level ever, Brazilian farmers have a huge incentive to plant more soybeans. Recently, the agricultural agency in Brazil, CONAB, pegged that new Brazilian soybean crop to be a record large 133.7 million metric tons (mmt) (4.9 bb). That would effectively be roughly 9 mmt (331 mb) more soybeans than a year ago. The weather ahead suggests the rainy season may be getting close in Brazil, but delayed planting has been the result, with Brazil seeding likely approaching two weeks late.

Even though no one knows how big China demand will ultimately be, or if the drought might be alleviated in the weeks to come, November 2021 soybeans may offer a nice place to begin marketing some new-crop beans. Both primary momentum indicators, relative strength index (RSI), and slow stochastics are flashing overbought warning signs. Although no one can be sure the normal rainy season in Brazil will arrive in a timely manner, or that China demand will continue to accelerate, when funds decide to exit those longs look for a sharp correction to the downside.

December Crude Oil:

December crude oil has been moving in mostly a sideways pattern for the last week or so. Since early August, it has been effectively in a $37 to $44/barrel range. December crude should again have very strong resistance in the $43 to $44 area on a further rally. The renewed COVID-19 cases and subsequent restrictions in parts of Europe and worldwide have continued to impact fuel demand negatively. While the market is mostly neutral, unless things change demand-wise, it is likely crude will struggle to get above $45/barrel in the near term. If it does rise above $45 on a close, all bearish bets are off.

December Soybean Meal:

December meal futures, since early August, have been on a nearly parabolic rise from the lows. December meal has rallied as much as $86 per ton. Momentum indicators relative strength index (RSI) and slow stochastics are getting in the overbought zone, with RSI over 70.

The soybean meal rise has been fueled by the late planting effort in Brazil and indications that some soybean and meal business could be shifted back to the U.S. Also supporting meal is the fact that Argentine farmers are holding on tight to beans as a hedge against inflation, and due to high export taxes. Managed money funds have jumped on the soy complex from the long side; estimates are that funds could be long over 80,000 contracts of meal. That would be the largest net fund long since June of 2018.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grain and soybean futures involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at Dana.Mantini@DTN.com

Follow him on Twitter @r_mantini

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.

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