Home Finance Blow-Off Top In Beans? – Seeking Alpha

Blow-Off Top In Beans? – Seeking Alpha

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Blow-Off Top In Beans? – Seeking Alpha
Healthy young soybean crop in field at dawn.

JamesBrey/E+ via Getty Images

JamesBrey/E+ via Getty Images
Soybeans started today’s session strong. Follow-through buying from yesterday’s bullish World Supply & Demand Estimate (WASDE) release sent prices right through last May’s $16.23 per bushel high with ease. The USDA reduced estimates for both the soon-to-arrive Brazilian crop and for overall global stockpiles. But this upside momentum did not last long. Front contract soybean futures finished sharply lower. Is this the beginning of a classic “blow-off” in beans?
Soybeans soared 34% – from a low of $12.17 per bushel in late November to this morning’s high of $16.33 – in just 10 weeks. We believe beans have now fully priced in bad South American weather and are overdue for a significant correction, starting as soon as today. Beans were unable to penetrate the big resistance zone between last spring’s two highs and appear poised to test support down at the $13.60 level. This anticipates a classic 61.8% retracement of the current bull move.

Overbought Soybeans

Reuters/Datastream

Reuters/Datastream
A lot depends on Mother Nature. It’s make-or-break time for the Argentine crop in particular. Big exports to China have also kept a floor under soybeans. However, the South American harvest will soon become yesterday’s news and the focus will shift to this year’s North American crop. The market is providing an excellent opportunity for North American growers to lock in high prices. We expect them to plant fencepost-to-fencepost this spring.
Correlations can revert to “1” in bear markets. A collapse in traditional investments like stocks and bonds forces investors to reassess their risk tolerance. Fear is a much more powerful emotion than greed. This can lead to bouts of selling in virtually everything. Overextended markets like soybeans are particularly vulnerable. Stocks and bonds are getting hammered hard today. Soybeans and most other commodities are following.
Our customers may want to consider buying July $14.20 soybean puts while simultaneously selling an equal number of July $13.60 puts for a net premium of $600 or less. Look for prices to hit our target prior to option expiration on June 24, 2022.
Your maximum risk is the net amount paid for these “bear put spreads” plus transaction cost. Each spread has the potential to be worth as much as $3,000. Exit all positions if and when our downside target is hit. Prices can and will change, so contact your RMB Group trading professional for the latest.
Please be advised that you need a futures account to trade the markets in this post.
Visit RMB Group to learn more.
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