What Is Happening To Soybeans?

We were caught in a speculative frenzy on soybeans.  This rally is not based on fundamentals.  Like lumber, this was a trade that was caught by a speculative fervor that you seldom ever see.  

If you re-read The Pit post where we recommended shorting grain, you can see that by EVERY measure, soybeans were overbought.  You had a sell signal on the CCI, you had overbought 5 day RSI, you had weekly RSI and Stochastics at the highest levels since 2012.  Optimism was at extreme bullish levels which only happens every few years.  Historical data states that soybean prices begin dropping now. 

Well you say, it is because we have a short soybean crop or demand is too great.  According to the latest USDA data from the WASDE report, we should have the third highest carryout over the past 10 growing seasons.  Look at the stocks to use ratio.  This is not old data.  This data is but 6 days old.

Grain rallies of this magnitude seldom occur in the fall.  The only such rally I can find in this same time period we are in presently occurred in 2012 which was a terrible drought year.  This year will probably be a record crop yield.

You could say many of the same things for Corn.  Even after drought and wind damage to the Iowa corn crop, the USDA estimates the 20-21 crop will give the largest carryout in the past 10 years according to the data I have.

So how did we get this trade so wrong?  The Agriculture is presently in the midst of a speculative frenzy.  There are no tools to help you manage a trade once speculators pour into the market.  Just like the frenzy which hit lumber, the best thing to do is to get out of the way. 

In a normal market, you can ride these kinds of moves out because prices will always come down from excessive levels.   This was the reason we did not place stops and this was the reason we held the positions so long.   This time it was a mistake.

There will be a time when a LOT of money will be made to be on the short side but I am not sure I can gauge when that will be.