Commentary for week of 8/4 November Soybeans:

The weather is driving the market lower with hot conditions through Tuesday or Wednesday then cool wet conditions after making it ideal. I said last week and say again “If the weather continues for the next 4 weeks (the next 2 weeks look great), it will be interesting to see if the major support of $12.50 holds, and I would be a willing buyer for a longer term trade. Corn looks great now, but the beans will need continued weather like this in August to keep pressure on the beans. The look of the chart and the feel of the markets thinking is that until a change in forecast, beans and corn are headed down for another 2 or 3 weeks at which time they will be lower than now and profit taking will set in as we look at an early frost (1 in 10 chance) and await indications of how many bean acres will be harvested. With the current situation, this year we will also know later than normal, and by mid October we should have a ballpark figure to work with”.

Nobody can predict what lies in store for the crop outcome, and this is what you are betting on a day by day basis. Weather, the funds, and chart levels where the decisions are made. Other markets might not have the weather to contend with, but to replace that aspect with the unknown factors of their own to deal with.

The next 6 weeks are critical in the growing season and I am really unclear about production and this year the spread of estimates is really wide which leads to volatile trading. Estimates by FC Stone and Informa will come out this week. My friend from the trading floor told me on Friday that guys were walking around dazed like he has not seen for ages. Not an easy market now, and I have told you about my current trading is in the short term and with small positions until the crop becomes clear to me. As far as the people who walk the trading floor like deer in the headlights, it is very funny when you are not the one, and in the past we all know that feeling. It is a good feeling when you have avoided being in that position. That is what I am doing by reducing my trade until I feel the market is stable, which at this time I feel is not. I trade small in these times to stay unemotional and be able to think clearly.

Pollination and frost are the only 2 rally drivers from here, and if they do not threaten, I think a retest of $11 soybeans will be in order first and then maybe a rally on frost concerns. In October when we really get the first clues on this year’s crop, will be the main factor to determine what the amount of supply we might have and thus what direction in price from there based on what we might actually produce and harvest.

This week I think that $14.17 should prove to be good resistance and support at $13.10 (the exact middle or “pivot” of those numbers is $13.63) and $12.53 ½ as being major support for the week.

Daily numbers for Monday 8/4/08 November Soybeans

Soybeans stopped at the downtrend line (red). See how the lines and numbers are perfect? The market formed support where the highs (resistance) of May and support for July. Price needs to close above the
downtrend line for 2 days to test next resistance of $14.48 FG.

It looks like they will test July’s low. With the weekly uptrend line and the 200 day moving average converging, I will buy using option strategies with a known risk. Ask Mother Nature, because she holds the answers for the future.

Know your risk, be conservative, do not trade emotional, and have a plan. About my butterfly spread that we are watching until expiration as a learning experience. The spread settled at 47 7/8 up 1 7/8 cents for the week even though beans closed down 33 1/2.

Since my target is $15 at expiration, the closer the market is to that number as time goes on, the more this spread will increase in value. If in fact the market at expiration was $13.86, the spread would be worth $.86, about double the price today and double your money. At $14.64 the spread would be worth $1.64. If there is a move on the chart to $13, my fly does not look that good. If the market goes into a correction mode back to $15, I will once again “love” this trade.

The August November spread trade was a non event, even with light deliveries, but I will be watching the September November trade to see if the tightness develops and if this idea can work.

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