Corn & Soybeans Show Signs of Strength
The corn and soybean futures markets have been in strong bull markets for over a year and they continued to make gains on Tuesday, April 15. July corn rose 14 ¾ cents to close at $6.19 ½ a bushel and July soybeans rose 7 ¾ cents to close at $13.97 a bushel. The number one concern in the agriculture markets as we head into the North American growing season is the weather outlook, and the conditions so far haven’t favored getting crops in the ground.
This winter has been one of the coldest and wettest we’ve seen in a while in the Midwest, and that’s not good for corn or soybeans as a cool and wet spring has prevented timely planting. The forecast for the Western U.S. is for a warmer-than-usual summer, and that could drive prices up too.
Soybeans have shown remarkable strength bolstered by events in South America. Brazilian dock workers and Argentine farmers are both on strike and this news has pushed prices of soybeans up recently.
Watch the monthly crop progress reports that come out about the 9th or 10th of the month heading into the June 30 USDA report, which will provide a clearer view of 2008 corn acreage. Keep an eye on the percentage of corn going into the ground. The less corn that goes into the ground, the higher prices will go.
The July soybean futures chart below shows a low on April 1 of $11.06 a bushel. The market stopped there and recovered to close higher on the day, a strong signal. Traders felt bullish news was coming and were buying on the dip. July soybean closed at $13.97 a bushel on April 15. A bullish trade signal was triggered on April 10, when soybeans closed above the 50-day moving average.
An area of interest to traders was the $13.55 – $13.57 range in soybeans. If the market can continue to hold that range, it could be a good sign for another move higher. Where the rally stops depends on the weather and how much crop gets put into the ground so be sure to mark your calendar for the June 30 USDA report.
The summer doesn’t look good for the corn crop. Corn is short on acreage and there seems to a struggle with getting the new crop in the ground on time. On March 24 the market rallied to attack the old highs, and surpassed them with a new record of $6.28 a bushel on April 9. The market backed off those highs over the next two days, but I don’t believe those pullbacks were tied to fundamentals. They were more likely triggered by the rollover from May contracts into the front month to avoid delivery.
Corn closed at _________ a bushel, UP/DOWN ________ on April 15. Tuesday’s close above the 8-day moving average of $5.95 is a bullish signal. I believe there are still buying opportunities in this market. I would recommend buying dips in the corn futures market if you can tolerate a higher risk. If you are more conservative, you should consider options. The 620/650 July corn call spread is one I am currently recommending if you can buy it below 10 cents. The July contracts give sufficient time for the strategy to work before expiration. If you want to wait another week or so, and see if the market can hold above $6.10, you can consider a 640/670 July call spread. Since prices are constantly changing, so will these strategies. If you would like to discuss this strategy in more detail, please feel free to call me at 800-993-6601.
Given the fundamental and technical points I just discussed, I don’t see much downside in the corn market, but of course, anything can happen in commodities. If the crop reports show plantings to be right on time, we could see a retracement to $4.55 a bushel, although I don’t see that as likely. Keep an eye on the monthly crop progress reports around the 9th each month, and that June 30 quarterly report for direction.
Tim Haberkorn is a Senior Market Strategist with Lind Plus. He can be reached at 800-993-6601 or via email at thaberkorn@lind-waldock.com.
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