Technically Speaking

With U.S. soybean ending stocks expected to be at a multi-year low, any further weather problems in Brazil, or an uptick in China purchases from the U.S., may lead to more noncommercial buying of U.S. beans. After a week of better rain potential in central and northern Brazil, the longer-term weather hints at more warmth and dryness for that region, and for more heavy rain in water-logged southern Brazil. Brazil, with good weather, is projected to have another record large soybean crop in the works. If the incoming rain is greater than the trade expects, then soy futures could move lower.

Another bullish factor to consider is the bullish fundamental outlook going forward for both soybean products. U.S. soymeal export sales, though recently slowed, are on pace to be record large. In soybean oil, with the advent of new renewable biodiesel plants, and the added demand that comes with that, soybean oil should be a big beneficiary. That market has also been beaten down and is due for an upward correction.

For January bean futures, Monday's test of and bounce from major support at $13.25 is a positive, but there is a long way to go until the close, and a lot of Brazilian weather to endure over the next several weeks. Funds do remain net long close to 90,000 contracts of beans and 130,000 contracts of soymeal, making both markets susceptible to more weakness if the much-needed rain turns out better than forecasts currently imply.

The wheat markets seem hopeless at this point for any sort of recovery. Kansas City March wheat, for the third consecutive day, fell to a new contract low. As if that wasn't bearish enough, both Chicago and Minneapolis March futures also scored new lows Monday. While only a pick-up in what has so far been dismal U.S. wheat export demand to date would get these markets going, KC and Chicago are also reaching into the oversold zone and are likely due for a bounce. With the U.S. Dollar Index on Monday falling to the lowest level since Aug. 31 as traders become more comfortable that the Federal Reserve could be done raising rates, that should provide further support to wheat. KC March appears headed for the seventh lower close in the past eight days. I would not be surprised to see wheat stabilize or rally soon from these overdone levels. However, certainly the action Monday provided little solace to bullish wheat traders. We will see if wheat can overcome the negativity and correct higher.

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The comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, futures or options involve substantial risk and are not suitable for everyone.

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

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