Is it time to take advantage of the over bought soybean market?

Is it time to take advantage of the over bought soybean market?

Soybean traders continue to keep a close eye on the charts. The bulls are hoping the MAY16 contract can muster enough momentum to close back above the 200-day moving average just above $9.04 per bushel. The bears are quick to remind us we've only closed above $9.05 less than 10 times since mid-August 2015.

In other words, even if it happens, there's a strong chance we might not stay above those levels for very long. I'm also hearing a lot more talk of domestic soy buyers dropping their basis in the past couple of weeks. So even though prices are moving higher, producers are getting hit hard on the backend as the basis comes under more pressure. Net-net not a lot of traction being made for the folks who grow the crop.  Technically, critical point near the 200-day trading average.

As a producer I continue to like the thought of building a floor on the recent rally and reducing some portion of our new-crop price risk. There's some important technical numbers that if breached during the next few sessions will certainly make the game more interesting. I hate to sound like a politician, and talk out of both sides of my mouth, but I truly believe the next 50¢ could go either direction.

The traditional fundamentals remain decidedly bearish as South America looks almost certain to harvest another record crop. Here at home there's increasing rhetoric that without a major weather hiccup and or production problem, U.S. ending stocks are going to move north of 500 million bushels and in turn prices should theoretically test levels sub-$8. The key word in that last sentence was theoretically.

In today's trading world anything is possible, often all fundamental logic is thrown out the window. Money clearly likes to chase returns, so from my perspective, the HFT's, Algo's, Quant's and Event Driven crowd could easily jump the long-side in an attempt to inflect the most pain on the largest number of players, an audible they often like to call.

As a producer, I'm hoping they can catch a few more bears offsides and ultimately provide us with a chance to price new-crop cash bushels at profit. As a spec, I'm staying on the sideline, patiently waiting for more of an upside breakout as an opportunity to trade the short side. I just don't think there's enough meat to go along with the sizzle.

Without a major U.S. weather story, I have to imagine the trade eventually becomes disappointed. So the longer-term bet still remains all about late-summer U.S. weather. I don't know anyone who's good enough to predict the weather that far out, so as a spec I'm simply keeping my dog out of that race until I can get a better idea about the outcome. I'm only interested in a trade when the market moves to much more extremes. Stay tuned!

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TAGS: Soybeans
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