I expect this drop in the Dollar to mark the end of the rally in the grains until the markets begin trading based on weather this summer. I expect the dollar to drop to around 92.
Today's move could very well be your last chance to sell $10.41 old crop soybeans. You are running out of time to sell if you have not done so already. When the beans go, it will be like everybody trying to leave the room at the same time.
When a commodity makes an extreme move, it is not unusual to see a similar move in the other direction. Take for instance the CRB Index over the past 10 years. Before the great recession, we saw the CRB advance 140 points above the 200 week moving average, only to be followed a year later to almost 140 points below the 200 week moving average.
The November Soybean contract completed an extreme move today when price reaches the $10.06 level. At $1.07 above the 200 day moving average, it equaled the distance between the extreme August low from last summer.
At these levels, you have to sell soybeans. Beans are late in their cycle and in the timing band for a pull back. My suggestion would be to get to 50% sold. I expect a pull back from here to be quite large. A least a 50% retracement will pull soybeans back down to the $9.40 level.
If you sold soybeans at my earliest target in the $9.45 to $9.50 area, I may recommend lifting those hedges or buying out those contracts. These extreme moves this early tells me that there is a lot of money wanting to flow into the grain complex, despite the poor fundamentals. The grains are along for the ride with oil and most other commodities out of their 3 year cycle low.
I don't wish to use this as a forum for patting myself on the back, but I wish to pat myself on the back. I first wrote about the opportunity for a commodity rally back in December. As I visited farm after farm this winter on crop insurance visits, my message was the same..... that we were going to have a powerful rally in the grains which would be fueled by massive short covering by the funds, meaning speculators would have to buy.
Just to recap, back in March as I was making the farm visits, I gave everybody this chart of the CRB index which showed that commodity prices had not been this depressed since 1973. Professional traders love these extremes to reverse positions. I told everybody that despite poor fundamentals, grains would rise with all commodities because of the short covering which would have to happen. This is why I was recommending price flex so strongly on crop insurance policies so that the price discovery window would be opened back up, rather than crop insurance guarantees being set at the lows of the market.
So in the 6 weeks since this first CRB chart was printed, oil is marginally higher than it was but now the grains and precious metals have rallied. Yet, the CRB has still only bounced another 10 points since March. The point is, all commodities still have a lot of room to rally.
Corn nearly reached a 50% retracement yesterday from the July high but pulled back today to the 200 day moving average. Still, that is a 50% retracement in just 3 weeks time.
Soybeans have also rallied to a 50% retracement of their July high. My recommendation to sell at the $9.75 level was because beans had moved into the 38.2% retracement. The magnitude of this move surprised me, and I was probably the most bullish person I knew. You would think that the drought of 2016 had been underway for a month, and very few have even planted soybeans yet.
Sentiment on corn and soybeans would indicate that they still have room to run higher so don't fall into the trap yet of thinking they are as high as they are going to get. My expectations for the new crop have actually become even more bullish when you factor in strong fund buying with the possibility of weather problems. The charts below are not a forecast, but more or less an idea of the time frames and price levels I am speaking of.
First, we get a bounce of the dollar through early June taking the dollar to this downward sloping trend line. (This is a wild guess because the currency markets are so heavily influenced by central bank tinkering.)
Now you have multiple things which can fuel a summer rally in June. A falling dollar, unfavorable weather, reset sentiment, and more short covering from the funds.
I wish to point out that picking the bottom a couple months ago was easy because of the extremes. There was really only one place for commodity prices to move which was higher. Now they have moved higher even faster than I could have ever imagined. Picking tops is just impossible to do so I am going to be wrong.... I already have been. Past performance is not an indicator of future results.
Today, prices are somewhere between where the low of the market was and where the high in the market will be. Moving forward, my plan is just to point out actionable places where making a decision to step on the gas or tap the brake will be prudent.
Some of these recommendations will require a brokerage account. If you do not have a brokerage account, I can help you with that.