Markets always find a value and always provide an opportunity. According to Moore Research, seasonal lows in soybeans are typically in place the first week of October and the market moves substantially higher into February. Using this information we could ask, why would the market rally? As of this writing, 64% of the yield surveys Allendale has completed are below normal while only 17% are above. Just a 2.8 bushel per acre yield reduction would completely consume the ending stocks and leave the market with the most bullish set of fundamentals ever recorded. Since this is not even possible, we would expect the U.S. Department of Agriculture will lower demand to correspondingly decline with a lower yield (if USDA does lower the yield). But the only way to reduce demand is through price influences. Additionally, this will cause more of a need for an increase in acreage of beans planted in 2009. Another supportive factor would depend on the financial policy of the U.S. and other governments. If there is an inflation based platform to trade from, investors will look for leveraged positions where fundamentals justify a long position. Heating oil, natural gas, and soybeans are some of the top picks.
Open interest and volume is declining, suggesting the market is liquidating. Bottoms are normally made when liquidation reaches maximum volume. But picking a bottom is treacherous. “Is this a bottom?” is a daily November bean chart with a MACD study. This tool can help identify the trend. Once the MACD turns positive, buy futures, calls, vertical call spreads, boxes, and 3-way options positions. Exit if the low made on maximum volume is taken out. This should offer a well-defined risk and orderly entry and has the potential to attract a lot of investor money into the trade once the yield estimates from Allendale’s surveys are confirmed.
Bill Biedermann is senior vice president at Allendale. He can be reached at email@example.com