We are seeing near-month Soybean futures having a very strong morning today. The worst U.S. drought since 1956 has caused a sharp increase in grain prices this summer. Even with the daily fluctuations of the news out of Europe, this is a very fundamentals-based rally in grains and we see the possibility of the grains markets marching much higher as the summer days pass by and we move into colder weather sooner than farmers might hope.
The soybeans have indeed been very volatile near contract highs after essentially going straight up for six months. Now once the whipsaw action has potentially scared out the short-term longs looking for a quick increase in price, we see potential for larger players to add to the bull trend if and when soybeans make new highs for the November 2012 contract. Up until this point, we have seen a fairly “orderly” rally in the grains markets. Even with the sharp increase in prices, we have not seen ANY limit up days in Soybeans, and only one limit-up day in corn. We are curious to see if we start to see limit-up days in soybeans if contract highs are breached.
Nevertheless, we have included a chart to show what key levels we are looking at. We see important price support (for the November 2012 contract) coming in at a bit above $15.50. We notice that this market rallied approximately $2 from its previous base at $15. Thus our opinion is that this contract could complete another $2 rally from its current base of support at $15.50. Thus a potential upside target area for November 2012 soybeans is $17.50.
Click for enlarged chart