“Beans In The Teens”

Technical Tuesday: Soybeans

"Beans in the teens" has served as the rallying cry for proponents of soybeans for decades. Whenever prices are above $10 going into the U.S. growing season, bullish market participants become adamant that this would be the year it was accomplished.? Of course, given the fact that central banks from around the world have been quantitative easing for 2 decades and injected $6T into the U.S. money supply from February 2020 to February 2022, “beans in the teens” is not the feat it once was.

That being said, evidence shows that buyers should be on guard for this to occur in 2024.?

The most probable path for prices given current information is seen below.

Daily Chart:

All the requirements for a completed pattern to the downside have been met.? Noteworthy is the bullish divergence in price and momentum, a triangle forming in wave B (triangles are always the second to last move in a sequence), and an initial five-wave move in wave (1) higher (initial 5-wave moves almost always guarantee a new price extreme in that direction).?

It is important to look at a market in many time frames (15 min, hourly, daily, weekly, monthly) since trends of all degrees are working simultaneously.? This can give a buyer confidence of overall trend and clarity of when to act.

For a more micro view, here is the May futures contract on an hourly scale.?

Hourly Chart:

Wave 2’s typically retrace 62% of wave 1’s.? Thus, we would not be surprised if May Soybean futures test $11.65/bu.?

Other evidence that can add confidence to a decision is seasonality.? The 30-year average for soybean futures is that we rally until the first week of June.? Buyers should always act with cautious confidence.? Gaining evidence from multiple metrics can help attain this cautious confidence.?

Adding plenty of powder to the keg that may cause this market to explode higher are the positions of hedge funds and commercial players as reported by the CFTC.? Hedge funds are record short this market and the soy complex.? Any bullish story or price increase that causes hedge funds to liquidate will quickly exacerbate the rally and often move prices beyond fundamental, rational value.

As shown below, commercial firms are rarely long commodities.? They are not speculators.? However, when they do have long positions, the market typically rallies.? See below.? Currently, commercials have near record long positions.? It does not mean soybeans rallies tomorrow.? But, you cannot be surprised if the this market goes into a sustained bull market in 2024 given the history.

Another piece of evidence to add confidence to extending coverage in soybeans is its relative value. Front month futures are in the lowest 2% of the price range the last 3 years.

As always, we want to look at risk: reward.? No one is right 100% of the time.? However, if you are right more than 65% of the time (very attainable with proper tools) and the magnitude of your wins are much bigger than the magnitude of missed opportunities when you are wrong, you become a very valuable member to your company by minimizing risk and increasing margins.?

Ideally, you make decisions that potentially reward you 3 times the amount you may risk in missed opportunity.? The most valuable asset of using the Elliott Wave Principle is its set of rules (45) and guidelines (41).? The rules provide a context that promotes disciplined thinking and objective guardrails for making decisions.? Since wave 2 cannot be larger than wave 1, we know our wave count and forecast is incorrect if May prices fall below $11.28/bu.? Using the guidelines and “what is most probable”, we can objectively put an upside target of $13.10/bu (potentially more if/when hedge funds unwind short positions).? Using these two price levels, we can say extending coverage at $11.74 is offering $3.07 reward for every $1 risked in potential opportunity cost if the market makes a new low (not expected).?

Market Drivers:

Outside markets:

• Gold at record high 2,365.00 (illustrates inflation)
• Crude oil above 85.00
• CPI report tomorrow is expected to be hotter than expected (Inflationary)
• Dollar is weaker

Bearish:

• Soybean meal, following record February exports, is likely to encounter very stiff competition from No. 1 meal exporter Argentina as they are likely to harvest a soy crop twice the size of last year.
• U.S. soybean sales commitments are disappointing relative to USDA estimates and soybean shipments to date are just 1.381 billion bushels (bb) compared to 1.695 bb one year ago.
• Planting weather in the weeks ahead should allow rapid advancement with the exception being the Delta and Southeast, which are expected to remain wet.
• The weekly Export Inspections report from the FGIS indicated a 13.2% drop in soybean shipments during the week that ended on April 4 to 484,328 MT. That was also down 28.7% from the same period last year.
• Brazilian soybean harvest at 78% complete, compared to the 82% pace last year.
• Forecasts indicate that temperatures are going to warm, and that some windows for planting progress will begin to open over the next 2 weeks.

Bullish:

• Soybean prices in Brazil continue to rise, despite U.S. futures recent sideways trade.
• Traders seem to be waiting for Wednesday morning's CPI report as the future timing of Federal Reserve interest rate cuts seem to be the only factor the marketplace is contemplating currently. Traders are expecting the CPI report Wednesday to show a rise in March of 0.3%, with year-over-year CPI to be up 3.5%.
• March palm stocks in Malaysia expected to be revealed at an 8-month low.

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