Grain Spreads: Bean Possibilities

Sean Lusk General Commentary

It looks to me that managed funds are getting comfortable owning beans above 14.00. Today’s action saw funds buy both old and new crop contracts with vigor. However it looks to me that exportable US supplies maybe priced out of the market on this rally, which could make for some erratic trading. Moving forward It’s all about South American weather, with dryness for Argentina and southern Brazil offering support. The bean market is also catching a bid from the rally in soybean oil that has seen the most actively traded contract (May ZLK21), trade to eight year highs. Palm Oil production in Indonesia may slide to a three year low in February as massive rains have hurt the crop and has disrupted harvest. It could cut stockpiles to their smallest in seven months. Output most likely is down 5 percent in February, which is 3 percent below last year and the weakest since February 2018. You couple this with harvest and shipping delays in Brazil and continued hot and dry conditions in Argentina where crop conditions per the Buenos Aires grain exchange are significantly lower than the last two crop seasons. Add all those factors up and you could have another leg higher.

Technical’ s come in as follows through next week. A close above the trend line at 1431 is needed for another leg higher in my view through next Friday (3/5/21). A close over and next resistance is 1442, which is ten percent higher on the year. Over 14.42 and in my view we can challenge the 15.00 handle as next resistance is 15.07 and then 15.15. With ending stocks so low domestically and issues abroad, its not unrealistic to get there. However support is seen at 14.08. A close under and its back down to the 1380/1378 area. A close under 1378 and the next level of support is at 13.59. Under 13.59, and its katy bar the door down to 13.12. Trade the charts!

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Sean Lusk

Vice President Commercial Hedging Division

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