Technically Speaking

NOVEMBER SOYBEANS:

Funds have likely amassed an all-time large net-short position in soybeans to begin the new week. They are no doubt adding even more selling early Monday. The November soybean market is extremely oversold, with both relative strength and stochastics indicators in that oversold zone. Does that mean we will rally right away? Probably not as overbought-oversold indicators can often telegraph a turn in the market, but never give a hint as to the timing of that turn, especially in a strongly trending market, which we are no doubt experiencing.

There is plenty of important weather to endure for the soybean market and to begin the new week, conditions are somewhat benign with a beneficial cooler and wetter pattern ahead for the Eastern Corn Belt. However, it is still very strange, in my opinion, for large speculative traders to be adding new shorts to an already sizable position in beans. Since there were still approximately 12.8 million acres of beans that had not been planted at the time of the June survey and massive flooding occurred in big portions of four to five key states, the jury is still out on the extent of prevented planting and soybean acres that will actually be harvested.

In my opinion, when funds get this short at such a vulnerable time of the year, it is rare that it doesn't result in a vicious short-covering rally at some point. I would be a very reluctant seller of soybeans down at this level; but so far, the funds have a different opinion that just happens to be right.

DECEMBER CORN FUTURES:

As in November soybeans, managed money funds decided to add to what is already a record net short last Tuesday of 354,000 contracts. There is little doubt that, since last Wednesday, funds have been piling on even more sales of corn futures. Unlike soybeans, corn has had a real demand reason to not press this market any further. The USDA increased exports and feed and residual in corn, and there are plentiful international issues affecting corn production potential. The Black Sea continues to bake under heat and mostly dryness, and that could hit one of the U.S. corn export competitors -- Ukraine -- pretty hard. Recent reductions in the EU maize crop are also a supportive factor. One thing to keep an eye on is Argentine corn production, with that crop just over 70% harvested. The Buenos Airies and Rosario Exchanges and some prominent crop scouts continue to carry a production number that figures 5 million metric tons to 6 mmt below the revised USDA estimate of 52 mmt. While the trend is certainly your friend if short, I'm not sure I have ever seen a market that is tipping in one direction so obviously that would not have a turnaround soon. With more than 50% of pollination yet to go, the corn crop is not out of the woods.

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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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