As its monthly chart shows, when June came to an end the most active futures contract was trading near major (long-term) support at $11.43 3/4. This price marked the 50% retracement level of the previous uptrend from the low of $4.98 1/2 (February 2005) through the high of $17.89 (September 2012). However, the November contract wasted little time in blowing through that support in early July, nearly leaving a bearish gap down in the process (the June 2014 low was $11.51 1/2, the early July high was $11.58 3/4.
July saw the November contract also move below the low of $10.94 1/4 from December 2011, setting the stage for a test of support between $9.91 1/2 and $9.28 1/4. These prices mark the 61.8% and 67% retracement levels respectively, a price are that didn't look possible given the robust inverse in the market's forward curve for much of the last few years.
Even as the market comes to a close for July, and looks ahead to the key crop production month of August, new-crop spreads are far from bearish. The November to January is showing a carry of 8 1/4 cents, or roughly 52% of the total cost of carry (total cost of holding beans in commercial storage for that time period). The January to March spread closed at a 7 1/4 cent carry (48% total cost of carry), the March to May at 6 1/2 cents (40%), and finally the May to July at 6 1/4 cents (39%). The November to July forward curve, a carry of 28 1/4 cents, covers only 45% of the total cost of carry.
Keeping in mind that neutral runs from roughly 34% to 65%, the commercial outlook for soybeans would indicate it is comfortably neutral. That being the case, a market tends to find support at its major 50% retracement level, dipping down the 61.8% and 67% levels if the commercial outlook grew more bearish.
The problem facing new-crop soybeans is that the old-crop supply and demand situation was TOO bullish. The strong inverse still evident in the August to September futures spread ($1.24 3/4) and the August to November ($1.42 1/2) created the sharp downtrend when the chart reflecting the most active contract rolled from the July to the November.
A look at the monthly chart for the DTN National Soybean Index (NSI.X, national average cash price, not shown) paints a picture that is not quite as bearish. While the intrinsic value of the market, its cash value, has been trending down it has not yet taken out its 50% retracement level of $11.16 (low of $4.85, high of $17.48). Again given the long-term neutral view of supply and demand, and acknowledging that this view could change, I would anticipate this price support holding the sell-off in the NSI.X over the coming months.
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