Are beans bottoming?

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Are beans bottoming?
  • John Roach is still bullish on corn in 2016.
  • The soybean cycle has either bottomed or should bottom by this summer and project higher soybeans in 2016.
In early April, we emailed to you a special report on the 4-year soybean cycle which started with similar bullet points. What has changed in the last 2½ months? Not much for corn, but the soybean charts are starting to look interesting.

Within the next few days, John Roach will complete a new webinar on his grain market outlook that summarizes the reasons he expects corn to be near $5.00 next year. John will tell you in his Daily Grain Plan when his new webinar is available.

However, John’s view of the soybean fundamentals remains bearish. Fundamentals are always most bearish at the bottom. Always. The first USDA projection for the 2015-16 marketing year called for a soybean carryover in 2016 of 500 million bu. - the second largest soybean carryover ever. June’s USDA S&D update trimmed the bean carryover by 25 million bu. Not much, but a step in the right direction.

As the 4-year soybean cycle on the monthly chart shows, beans should be bottoming by this summer (if it hasn’t already bottomed) because the next projected high is expected in the second half of 2016. The previous 4-year cycle high was in the 3rd quarter of 2012 near $18. Here comes the standard disclaimer: Cycles can stretch, shrink or even disappear at times. They are not perfectly symmetrical because that would make them too easy to follow.

Cycles don’t tell us what the fundamental news will be to make the cycles work, but the news usually come out to make the cycles repeat themselves over and over again.

For this week’s news, soybean traders suddenly became worried about the 11 million acres of soybeans that have not yet been planted as of last Sunday. The 45-cent Nov soybean rally from new contract lows on Monday formed a small double bottom on the charts. Decisively closing above last week’s highs completed the double bottom formation that projects a target in the $9.65 to $9.70 area - just above the mid-March through mid-May congestion area. This significant resistance zone could prove to be a major hurdle for this rally. Setbacks will look for support where the double bottom was completed in the 9.30 area on the Nov chart.

Large spec funds have been heavily short all the grains for months. We saw what happened with wheat a couple weeks ago when a little bit of friendly wheat news triggered substantial short covering that gave us a 75-cent wheat rally. If the large spec funds scramble to cover their shorts, beans might be able to match the recent wheat rally and that would put beans near the target of their double bottom formations.

As always, be prepared for technical failures. If soybeans are unable to hurdle their resistance area, soybeans could return to test $9 or something in the $8 dollar range or even lower.

Don’t get too excited about this unplanted bean acreage, warns Brian Roach, president of Roach Ag. He knows you should never underestimate the ability of the American farmer to get his crops planted. Beans have rallied to a trigger Roach Ag sell signal so old crop sales can be made nearly 60 cents higher than late May. At a minimum, you need to be cleaning the old crop out of the bins to make room for your new crop soybeans.

If it isn’t reduced soybean acreage that puts a bottom in the soybean market, could it be reduced yield because of the late planting? We don’t know what the news might be that could keep beans from resuming their downtrend. After the long-term soybean cycle has bottomed, expect the news to give the market surprises to the upside. So far, we only know that the soybean charts have turned more positive, but prices will have to push their way through more than 2 months of overhead resistance.

In addition to the small double bottom on the daily soybean charts, soybeans returned to essentially match last fall’s harvest lows just above $9, setting up a potential larger double bottom on long-term soybean charts. $9 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. The $9 area is also the low of this decade which provided support in 2010 and 2014.

To complete this larger double bottom requires decisive weekly closes above the November high at 10.86 3/4 by the nearby soybean futures contract. Closes above this high made in November 2014 would confirm a significant soybean bottom has been completed. We’ll keep you posted.

Paul Wilcox
Ag. Consultant
Roach Ag Marketing
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