Do beans have more upside?

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Soybean Cycles project higher prices into 2016

  • John Roach is still bullish on corn.
  • The soybean cycles could become bullish and project higher soybeans prices into 2016.

If you haven’t already seen John Roach’s excellent webinar on his grain market outlook and the reasons he expects corn to be over $5.00 next year, click here. However, his fundamentals for soybeans are bearish.

Logically, it is unlikely that soybeans will slip lower if corn is climbing 25% higher (think 2:1 soybean/corn ratio). But what will be the fundamentals that could spur soybeans to keep pace with or even outperform corn?

I don’t know, yet, but expect surprises to the upside for soybeans. Why? Because the soybean cycles will soon be turning up (if they haven’t already) and project higher prices into 2016.

Cycles are like technical analysis – we don’t know what the fundamental news will be to make the cycles (or technical analysis) work, but the news eventually unfolds to make the cycles repeat themselves over and over again.

Look at the monthly soybean chart and the approximate 4-year cycle from peak to peak.

The previous cycle highs for the approximate 4-year cycle in soybeans are:
1st Quarter 2000,
1st Quarter 2004,
2nd Quarter 2008,
3rd Quarter 2012.
Next projected high is 3rd Quarter or 4th Quarter 2016.

Are soybeans bottoming now?

First, soybeans need to put in their 4-year cycle bottom. On Tuesday, the USDA gave the soybean market its first mildly supportive news with a 2015 U.S. soybean acreage estimate that was more than 1 million acres less than the average trade guess. That helped soybeans close higher while corn and wheat closed sharply lower.

The 20-day moving average had kept the lid on soybean rallies for the past month. Clearing this resistance is an initial indication of bottoming action. May soybean prices pushed above this resistance line on Wednesday and into position to attack its $9.90 resistance level.

Turning to additional technical analysis for clues about a potential bottom, soybeans are currently working on potential double bottoms. There’s a smaller potential double bottom forming on the May chart just above $9.50, as shown on the May soybean chart. Tuesday’s selloff was halted at the mid-March lows near $9.50. A decisive close about the March 23rd high at $9.90 would complete this small double bottom on the May chart (Thursday's close: $9.86). This would be another technical signal that a bottom may be forming.

The Nov soybean chart has a similar small double bottom, but it also has a larger potential double bottom in the $9.40 support area - if you count the 2 tests of that support during March as one leg of the larger chart formation. This larger double bottom formation requires closes above the early March high at 10.04¾ to complete. Closing above that resistance would be a third and more important technical signal of a soybean bottom because it is a larger chart formation over a 3-month period.

As always, you have to be prepared for technical failures. If soybeans are unable to complete these double bottoms on their charts this spring, soybeans could return to test last fall’s lows near $9 or even below given potential bearish fundamentals still to be proven out this growing season.

Cycles are not perfect

One of the problems with cycles is that they stretch, shrink or even disappear at times. If they were perfectly symmetrical, everyone could easily follow them.

Soybeans have already fulfilled what was expected for a cycle low by dropping to $9 last fall, which was half the cycle high price near $18 in September 2012. The $9 area is significant on long-term soybean charts. It was the peak in soybeans throughout the 1990’s - a critical level of resistance turned into support for the current 2-year decline. $9 is also the low of this decade which provided support in 2010 and 2014.

But just because soybeans stop going down doesn’t mean they will immediately go back up. Sometimes, markets will trade sideways in a congestion area for months before launching a significant advance.

Rather than bore you with even more technical reasons why soybeans may be bottoming this spring (or they have already bottomed last fall), we’ll keep you updated in our daily newsletter on the progress, if any, that soybeans are making in forming a bottom. For now, trading sideways during the bumper South American soybean harvest is a very encouraging sign.

Fundamentals are always most bearish at the bottom and most bullish at the top. Always. John stuck his neck out by saying we’ll see $5 corn next year. He backs that up with solid fundamental reasoning.

I don’t know what fundamentals might unfold to send soybean prices higher. The 4-year soybean cycle points to a 12-18 month advance leading into the next cycle high in the 3rd or 4th quarter of 2016. After a low is finally confirmed, the technicals point to at least a .618 retracement of the 2-year $9 decline, which projects a target in the $14.50 area.

If cycles and technicals were always 100% accurate, you’d bet the farm on it. But they aren’t accurate enough for you to risk it. You must continue to follow the Roach Ag marketing plan and stay on a proven selling program.

Just keep in mind that soybean prices this spring are depressed by the Brazilian harvest just like soybean prices were depressed last fall by the U.S. harvest. The 4-year cycle should eventually be turning up to take soybeans higher in late 2016. We’ll keep you updated.

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