Trading Recommendations for Grains & Softs
by Matt Roma
Various grain and soft markets have seen extended bull markets in the past year. Last Friday’s (January 11) monthly supply and demand report from the U.S. Department of Agriculture (USDA) helped fuel continued gains in these markets. Let’s take a look at what the charts show, and some short-term trading strategies.
March Wheat
March wheat futures rose 15 cents to close at $9.32 per bushel on Tuesday, January 15. We’ve seen big gains in the grains this past year. Wheat is up about 40 percent over the last year because of increased global demand and supply concerns.
If you look at the short-term chart below, you’ll see the market had a large rally from $7.65 to as high as $10.10 per bushel. Wheat has pulled back a little since then, and you can see in the chart below the short-term trend in this market is sideways to down. Tuesday’s large run-up is a continuation of higher prices that have followed the U.S. Department of Agriculture’s (USDA) monthly supply and demand report, which was issued on Friday, January 11.
March 2008 Wheat – Daily Chart
I see major support at $8.80 in this market. As you can see, the market is forming a bit of a wedge. The recent downward trend and bottoms come in around $8.80. I do believe wheat will move higher. If it breaks above $9.40, this market could return to $10 in the near future.
Granted, grains are weather markets, and these recommendations can change at any time. However, I do think it is smart to use call options since they offer defined risk.
March Corn
Corn fell 3 cents, settling at $5.09 per bushel after rising about 37 cents following Friday’s USDA report. This market has also seen a large rally over the past few months. Corn is in an obvious uptrend, although it hasn’t risen as quickly as the soybean or wheat markets.
I do believe there may be a pull back in this market to under $5 a bushel. If prices fall below $5, I believe that will present a good buying opportunity.
March 2008 Corn – Daily Chart
As we head toward the USDA’s March 30 Planting Intentions Report, I believe the corn market will continue to trend higher as farmers shift acreage to soybeans due to the run up in soybeans prices over the past year.
March Soybeans
March soybean futures rose 5 cents on January 15, closing at $13.01 ½ per bushel. This market has been higher since October, from $9.60 to over $13.01 on Tuesday. As you can see in the chart below, this market has been in a roaring bull market and I believe it may be due for a correction. However, I think if the market corrects back to $12.50, it might continue the uptrend into the coming months. I would recommend getting long this market at $12.50, with a stop just below $12.10.
July Cotton
July cotton futures closed at 71.69 cents per pound on Tuesday, 0.49 cent higher. You can see that this market formed a nice “V” shaped bottom back in December and the market has been in a nice uptrend since. It did hit resistance in the 72 cent area, but you can see that there was some profit taking right before Friday’s USDA report, forcing the market to make a nice correction. After the USDA report was issued, cotton saw a large run to the upside, on both Friday of last week and Monday, with a continuation on Tuesday this week.
March Sugar
March sugar futures closed unchanged on Tuesday, but have also seen a breakout recently. As energy prices continue to rise, the ethanol demand will increase the demand for sugar. This market has consolidated between 11.30 and 11.80 cents per pound. I believe this is just a continuation pattern that is forming. In the short term, I think the March contract could trade as high as 12 or 13 cents. In the longer term, I think October futures will probably trade closer to 15 or 18 cents.
March 2008 Sugar – Daily Chart
March Coffee
March coffee futures closed at $1.3685 on Tuesday, down 0.70 cent. Coffee has also been in an uptrend, but we have had a lot of consolidation between $1.30 and $1.37 cent area as traders begin to decide which way this trend is going to head.
I believe there is good market support in the $1.30 to $1.31 area. I would recommend buying the futures on any kind of a pull back in this market. As you can see in the chart below we started to break in the $1.37 area, but we did have a false break out in December when we traded down to the $1.30 area, but this market has continued to rise since then. We saw a breakout on Monday to over $1.37, which I think will lead to old highs of around $1.44, and maybe even a continuation to $1.50 a pound.
March 2008 Coffee – Daily Chart
March Natural Gas
Anyone that has been watching the news recently knows that the energy prices for natural gas, crude oil and gasoline have really taken off over the last year. Crude oil went from about $50 a barrel in January 2007 to $100 a barrel, which we saw a few weeks ago.
March natural gas futures fell 0.135 MMBtu (million British thermal units), to close at $8.136 MMBtu on Tuesday, January 15.Natural gas hasn’t seen as much of a rally as the heating oil and crude oil, so I do think there is an opportunity to buy natural gas futures here in the next six months.
I wouldn’t buy them yet, but if you could buy them below $8, or as low as $7.50, I think that would be a good price area. If you see natural gas trade to $7, I think that would also be a great opportunity to buy. However, you probably wouldn’t want to risk it to about $6.50, but I do believe the gap between natural gas and crude oil is probably going to take off. This is because crude oil refuses to back off from the $100 level. Every time we have a correction it just heads right back up. And I think the natural gas will probably rally to close the gap between crude oil that we saw over the last year.
March 2008 Natural Gas – Daily Chart
Matt Roma is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at mroma@lind-waldock.com.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
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