Bumper crops continue to drive soft commodities markets

November Soybean futures - weekly chart
November Soybean futures – weekly chart

It was another week of falling prices for soft commodities once more, as over supply issues continue to dominate across all the major markets, and clearly evident from the weekly charts. It is the US which sets the price for world markets as the largest exporter, with the US Midwest corn belt set to produce a record harvest for a second year.  Soybean too is expected to produce the largest crop ever on record. This picture of bumper harvests is also mirrored in Canada, and even events in the Ukraine and Russia have had little impact. China too, is increasingly adding storage facilities to cope with its own booming harvest and imports, with corn and rice now in plentiful supply, and with Europe also forecasting record crops, it’s little wonder that grain markets are falling, and falling fast. In addition, a resurgent US dollar is also helping to propel commodities lower, with the CRB index closing lower once again at 279.17. All of this is in sharp contrast to the shortages which were the catalyst for a surge in prices in 2007, which in turn sparked riots in many countries around the globe.

If we start with soybean, the key price action here was the breach of potential support in the 1030 per bushel region early in September which failed to hold. The market duly broke lower on high volume, with last week’s price action closing on a wide spread down candle and high volumes, ending at 910.25 per bushel. Soybean prices are now approaching a second and perhaps even more significant area of potential support in the 900 per bushel region, and if this is breached, then we can expect to see the commodity move through this level and lower still, perhaps to test the 840 per bushel region in the longer term. In overnight trading on Globex soybean prices have fallen once more with the November contract trading at 906.00 per bushel.

December corn futures - weekly chart
December corn futures – weekly chart

Moving to corn, the picture here is much the same as for soybean, although perhaps at a sligthly more measured pace. Here the decline in prices has been less pronounced over the last three weeks, but nevertheless the bearish picture remains dominant as corn, like soybean and wheat, is largely being driven lower by the supply equation. Last week’s price action was accompanied with above average volume, following the weakness signaled in the previous week with the deep upper wick to the candle. The key level here is in the 300 per bushel region, where a minor support region awaits. If this is broken then 260 per bushel becomes the next logical region for a pause, where a deep area of price congestion may finally bring the current bearish trend to an end. This was the level back in May 2010, which saw prices surge from 270 per bushel up to 630 per bushel. The December contract closed last week at 323 per bushel and overnight on Globex has climbed marginally to trade at 324.50 per bushel at time of writing.

December wheat futures - weekly chart
December wheat futures – weekly chart

Finally to wheat, and here perhaps we are starting to see the first signs of a pause point, following the sharp declines of the previous three weeks with last week’s candle closing as a small doji candle, but on high volume. This is a clear anomaly for volume price analysis traders, clearly signalling buyers moving into the market at this level, and the first signs of stopping volume in the downwards trend. As always, I must stress, markets rarely reverse a trend on one candle, but nevertheless, this is the first sign that perhaps soft commodity prices, and wheat in particular, are just starting to find a bottom. Indeed in overnight trading on Globex the December contract is currently trading at 478.50 per bushel, moving off last week’s close of 474.25. Whilst one swallow does not make a summer, it will be interesting to see any reaction in the associated markets, particularly of course for corn. The probability will be that this is simply a pause point, before a further move lower, but for commodity traders in wheat, it may be a case of trade what you see and not what you think this week!

By Anna Coulling

About Anna 1054 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

2 Comments on Bumper crops continue to drive soft commodities markets

  1. Anna thank you fro the detailed update. Could you give some insights as to how the farmers will react to this decline in prices and what should there strategy for the next season. Can you also let me know how the market reacted to over supplies in the past.

    • Hi Usman – many thanks for your kind words and glad you like the analysis. With regard to the farmers, this will depend on the view they took in the futures markets and whether they sold their crops at a higher price or perhaps are now waiting for prices to rise from their current level. Naturally for those farmers who have not fixed their price in the future, they may be waiting and hoping for a rally. For those who did sell their crops at a higher futures price, they will be happy. So it’s all a question of what view they took of the market, the weather and the supply and demand equation for the growing season and the decisions they made. I hope the above helps and many thanks once again – kind regards Anna

Leave a Reply

Your email address will not be published.