Wow! I think this past week put a whole new meaning on volatility. In past commentaries, I have thought that the lows for harvest were in and would not exceed the July lows. That thought was derived from several cycles that were major and coming due for a low from July 24 to Aug. 2. We got a response in the futures with a near 50 percent retracement from the July high to the July low. However, talk of rain for the week and now this week in the dry areas has led to the soybean market unraveling at mid-August.
Yes, the equities markets helped the cause, but since the soybean market was loaded with longs (and fund length), the concern of rains enhancing the crop as well as fear that funds would level positions in all markets to hold money together, the break was not unwarranted or a total shock.
What's next?
Now where do we go from here? The past would indicate during years of declining carry on new crop soybeans, the tendency to put in August harvest lows. Many of those times seen the August low higher than the July low. But not this year. So I now look for an August low.
Weather in Argentina still tends to be dry, and so do parts of Brazil. The real has had a drop from the highs as the dollar has rallied. This is helpful even in the face of soybeans decline as the currency fall in the real helps to cheapen input costs. Will farmers change their mind on switching corn acres back to soybeans if prices of soybeans deteriorate much more? The corn market stands to lose 10 million acres to wheat and soybeans. One commodity will suffer again this year. Which one will it be? I think in the end, corn will win out. But price will have to determine the outcome.
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The support for November soybeans in last week's comments were all wiped out. New support at 797-794. Soybeans need to hold the 793. I'm not sure that holds, but it would be bullish if it does.
Switching crops?The Elliot wavers are bearish and right now look smart, but on a longer-term basis, I remain bullish. The fundamentals are right. With the real down 13.5 percent, Brazilian farmers might plant more than 5 percent to 7 percent more soybeans than already being estimated for an increase by Brazilian consulting firms. Brazilian farmers are holding large debt and they may not want to risk more acres.
However, in Goias, which is Brazil's fourth-largest soybean producer, farmers are said to be switching acres to sugar in place of soybeans. Sugar is a profitable crop to plant because of Brazil's rapidly growing ethanol industry makes this crop so profitable.
Meanwhile, fertilizer is expensive and in short supply in both Argentina and Brazil, which could very well lower corn plantings as opposed to soybeans.
