Calling A Top In Soybeans

December 1, 2020 12:30 PM
The soybean market has lost momentum
China has slowed down soybean purchases
A highly overbought soybean market now needs correcting
Soybeans trading

Soybeans trading

 “Picking tops is a fool’s game!” I know it sounds crazy to some, but here’s how I see things today. The soybean market has lost momentum. The market also hasn’t— with all this bullish news of Chinese demand, tightening stocks, and drought conditions in Brazil— been able to trade and close above the key level of $12.00. Yesterday was an outside down day in soybeans; a key reversal indicator. We’re now getting a shift in the weather pattern in Brazil. “Rain makes grain.” China hasn’t only slowed down purchases, but there’s also likely to be several cargoes getting canceled. China is notorious for using this tactic. Let’s face it folks, the new administration in Washington is going to re-work trade deals that will benefit China.

So, the way I see it is that we have a market that was way overbought and in need of some correction. There’s been some damage now to the chart and technical trading is how most traders trade. That’s what’s happening right now. Fundamentals are slower to change. They take time to shift but I believe that drought-busting rains in Brazil will take $1.00 to $1.50 out of this premium immediately. And honestly, who doesn’t think it’s likely that China plays games with soy prices?

We’ll likely see some consolidation around the $11.50 to $11.40 range. People will talk about a “head and shoulders” pattern, another trend reversal indicator.

If you are interested in discussing the potential opportunities in the agricultural futures, contact me directly fcholly@rjofutures.com

About the Author

Frank Cholly has 35 years of commodity industry experience. He spent 20 years on the CBOT trading floor.