Something Stinks in the Soybean Charts
This business has a saying: When trying to pick bottoms, all you get are stinky fingers.
This quip pops into my head when looking at the soybean futures chart. Prices are dramatically lower than the 2022 highs near $18 per bushel, but that doesn't mean they are "cheap." Oversold oscillators and memories of beans in the high teens artificially manufacture the appearance of cheap.
Yet, if we take a step back to look at the big picture, it is evident that we've seen this pattern before. In fact, we've seen it play out twice in the last 20 years, and each occasion ended with $8 soybeans. History is important. In 2014, specifically, the January World Agricultural Supply and Demand Estimates (WASDE) supported beans enough to keep prices elevated above $12 through May, but the October lows came in near $8.
Chart Source: QST, Barchart, MRCI
The March 2023 low in soybeans started a technical pivot line that has since been a catalyst for market volatility; each time soybean futures have interacted with this trendline, there has been a strong response. The outcome was a bullish reversal on six occasions, but has failed on two.
The first failure was in May of 2023, resulting in a meltdown to the mid-$11.00s. This support line failed again in late December near $13, triggering a 70 cent collapse, thus far. It will be up to the WASDE Report to turn the tides because chart analysis suggests the door is open for a repeat of the May 2023 slide. But because commodity prices are often influenced by emotion rather than math, prices tend to overshoot; in our eyes, if liquidation continues, $11.00 is in play for March soybeans.
According to the Commitments of Traders report issued by the Commodity Trading Commission, large speculators have liquidated most of the long positions accumulated in the historic rallies of 2020 and 2021. But they have yet to go net short.
In the past, the path of least resistance was lower for beans until large speculators were actually positioned on the bearish side of the market. This suggests that even if the WASDE does come in with a stick save for soybeans, the spring and summer rallies will likely be aggressively sold. If the WASDE is unfriendly, $11.00 beans are expected to be seen in short order.
For the sake of producers, we would prefer to see soybeans reverse course on the heels of the WASDE report and regain composure above $13 per bushel. But history suggests it is better to proceed with hopes of the best and expectations for the worst.
At the time of publication, Garner had no position in any security mentioned. Remember, there is a substantial risk in trading options and futures. Doing so may not be suitable for everyone.