FastBreak By Jim Wyckoff
Extreme heat forecast for much of the Midwest in the coming days has helped push corn and soybean futures to multi-month highs this week. Some good export demand for U.S. corn and soybeans, along with some weather problems in South American growing regions, have also contributed the surprising bull runs in corn and soybean futures. It’s shaping up to be an exciting and volatile summer in the grain futures markets.
The present rallies in the grain futures markets and the onset of the summer U.S. growing season have many traders once again placing keener focus on the grains. Come next Monday morning, if the Corn Belt weather forecasts continue to call for hot and mostly dry temperatures, the grain market bulls are likely to be off and running on another leg up in prices—and it’s only early June!
As we move into the more critical mid- to late-July period in the Corn Belt, such is the timeframe when summertime temperatures are usually the highest. Corn plants are also in their critical “pollination” stage of development during that time, when a few days of hot, dry and windy weather can sap yield potential in a hurry. Any mention at that time of a high-pressure ridge or “heat dome” forming over the Corn Belt is likely to really excite the grain market bulls.
There is nothing like a rip-roaring “weather market” in the grain futures to seriously challenge the two most important emotions a trader can experience: fear and greed. In the heat of a weather scare in grains, prices become extremely volatile and trader emotions run very high, as the latest weather forecasts can and do turn markets “on a dime.”
Being involved in a weather market in the grains can be a great experience for traders. While there is some degree of a weather market scare in the grain futures nearly every year, the “full-blown” weather markets that are usually marked by severely dry weather conditions, and even drought, in the U.S. Corn Belt come around only once every several years.
My experience in being involved with weather markets is that there is tremendous pressure on all traders to “follow the herd.” Deviating from the consensus market opinion is not easy. However, it’s the traders that can step up and sell into rallies or buy into dips that seem to have more success in trading weather markets in grains. In other words, doing some contrary thinking and trading can pay dividends in weather markets.
Weather markets in grains many times provide a classic example of futures traders “factoring in” fundamental events well before they actually occur. For example, in the big drought year of 1988, the soybean crop was most damaged during the months of July and August. August is the most important growing month for soybeans. Yet, futures prices that year topped out the third week in June.
Let’s take a look at the present technical postures for corn and soybeans via the weekly continuation charts for nearby futures.
Corn: See below on the weekly continuation chart for nearby corn futures that prices are near the upper boundary of a sideways trading range at lower levels. There is strong longer-term chart resistance at the 2015 high of $4.43 1/4 a bushel, basis nearby futures. If prices cannot push above that level in the coming couple weeks, then it’s likely this present rally in the corn market will fizzle and prices will drop below chart support at $4.00 and back into the middle of the trading range seen on the weekly chart. However, if corn prices can push above the 2015 high of $4.43 1/4, then it’s likely “off to the races” for the corn bulls, with $5.00 becoming an upside objective.
Soybeans: The weekly continuation chart for nearby soybean futures shows prices are in a steep uptrend and are trading at a nearly two-year high. The next upside price objective for the powerful bean market bulls is pushing prices above technical resistance at $12.00. If that hurdle is cleared, the $13.00 and prices above would be in the bulls’ sites. A drop in nearby soybean futures prices below technical support at $10.50 would produce some significant chart damage to suggest this latest bull market has run its course.
Jim Wyckoff is the proprietor of the analytical, educational and trading advisory service, “Jim Wyckoff on the Markets.”