The grain and soy markets saw key reversals from multi-year highs early this week, and volatility has picked up dramatically. They regained a good portion of those losses on Friday off dry weather concerns for the second crop production out of Brazil. Extremely dry weather opens the door for significant damage over the next several weeks.
The markets have also been fueled by inflationary expectations and a heated-up US economy. But while corn may have the fundamentals to rationalize a continued uptrend over the near term, soybeans and wheat appear to have enough of an overbought condition for the potential improvement in US weather to spark additional selloffs.
The improving weather could open the door for more planted area. ADM’s CEO suggested this week that total corn and soybean plantings could end up being 5 million acres higher than what the USDA Prospective Plantings Report indicated in March. There has also been more talk of soybeans, corn and wheat being imported into US East Coast feeding operations. This could help cool down the cash markets.
The long-term bull trends may continue, but the extremely overbought conditions leave the futures vulnerable to heavy selling in the near term. July Soybeans and July Chicago Wheat are still operating under the negative technical influences of the April 27 key reversals.
Originally Published on April 30, 2021
Chart sources: Bloomberg
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