Are soybeans headed to their all-time highs?

Could be with a possible “perfect storm” coming from a dropping U.S. dollar.

Last week November 2011 soybeans opened at 1375½ and closed the week at 1423½. The U.S. dollar last week opened at 74.140 and closed the week at 73.869. A close below 73.500, the most recent solid chart support, could bring the U.S. dollar closer to the lows we saw back in 2008. Does anyone remember a U.S. Dollar Index at 71.000? When the dollar was trading there, where were soybeans? That’s correct, at their all-time highs over $16.00!

We see a deterioration of the 2011 U.S. soybean crop because of hot and dry conditions with 59% of the crop in good-to-excellent condition as of Aug. 21, down -2 pts w/w and -5 pts y/y. We also saw the USDA’s Aug. 11 cut in its U.S. soybean production estimate for this year to a two-year low of 3.056 billion bushels. What would a perfect storm be without Chinese demand? We see increased Chinese demand after July when Chinese soybean imports rose +24% m/m and +7% y/y to 5.35 MMT, their highest level this year.

Proceed to Page 2 for the latest COT Data...

COT Data

Let’s not forget "big money." In the COT legacy report we saw commercials net-short -47,513 contracts on Friday, July 8. This past Friday, Aug. 26 commercials were -134,196 contracts net-short. What that means is that we saw increased buying and selling by big money. Of course, if you look at the weekly soybean chart below, you will see how Swap Dealers are actually trading in soybeans along with Managed Money and Producers (true commercials). Also watch weekly ADX now moving up to 26. That will show a strengthening trend at the price action when this takes place.

And yes, "big money" also plays in the US Dollar Index. We saw commercials on July 8 net-short -11,380 and this past Friday, Aug. 26 net-LONG 2,454 contracts. This you will want to watch very closely. Just look at the price action as commercials add to their net-longs. Interesting, isn’t it? Weekly ADX is at 17, which shows a weekly weak trending market.

So, it looks as if we could see a "perfect storm" setting up in soybeans. Time will tell, but at least now you know what to watch for.

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...