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A Technical Look Ahead

Published on Monday, October 7, 2019

Last Monday, the USDA released its September 1 Quarterly Stocks report.  This data set becomes our carry in stocks for the 2019/2020 marketing year.  Corn and soybeans both experienced significant technical triumphs after the USDA's numbers were less than the lowest trade estimate.  See the full data set below. 
  

USDA SEPTEMBER 1 U.S. GRAIN STOCKS (mln. bu.)

                                         USDA               AVG. EST.            USDA 18/19 E.S. EST.      
CORN                              

 2,114 

                 2,428                             2,445                                    
SOYBEANS                        

913

                     982                             1,005                         

Prior to the release of the latest stocks, both corn and soybeans had been struggling to move beyond overhead technical resistance.  Soybeans had made many failed attempts at cracking the $9 barrier ( see chart below ) , while corn had recovered off of it's $3.5225 lows and struggled to move beyond $3.80.  Almost immediately after the report was released, both markets easily moved higher and were able to maintain those gains through the end of the week.
  
A quick glance at a soybean chart and you will notice that every .20 cents we run into resistance. Also note, since the trade war began November 2019, soybeans have been unable to breach the $9.60 mark in any meaningful way.  While the data set released last week was bullish, we do have to view the stocks number in context.  913 million bushels is not a number that points towards a soybean shortage.  This is the largest number of bushels that we have ever carried in from one year to the next.  While yields in the field will likely drive market movement in the coming weeks, any move higher should be viewed as a selling opportunity.   

The story in the corn market has also been focused on technical movement as of late.  In previous newsletters we spoke of the gap that remained in the December 2019 corn chart following the decline in the August 12th report.  This gap existed from $3.9275 down to $3.88.  Last Monday that gap was fully filled, to the quarter cent.  Since then corn has remained in a sideways trade, waiting for further direction.  While yield is yet to be determined for the 2019 growing season, with a sizable carry in of 2.1 billion bushels,  we are starting the year with a cushion.  Should the corn market move higher, it will not do so without a fight.  Notice that should we approach $4, a number that has typically caused the market to genuflect, we also approach 38% retracement.  Each of these significant technical price points will serve as resistance in a rising market.

With so much uncertainty surrounding these markets, price risk in either direction is a reality.  Give us a call to help through a strategy that best suits your operation.