Soybeans test SIGNIFICANT support. Will it hold?

November soybean prices (ZSX2023) have been hit hard after failing to get out above significant resistance in the last week of July. We’ve previously outlined that resistance pocket in our daily reports as 1427 ¾-1435, which has been a brick wall for the market dating back to the spring of 2022. Since the recent technical failure, prices have retreated nearly $1.50. So, was the selloff all technical? No, there were fundamental forces at play. The November soybean contract is what grain traders refer to as “the new crop contract”, meaning it is the crop that is in the ground right now and will be harvested in the fall. During this time of year crop development is key, which means weather is key. Cooler temperatures and precipitation across the Midwest over the last few weeks have alleviated concerns around drought conditions which acted as a headwind for prices, triggering long liquidation which can be seen in the most recent Commitment of Traders report. That report showed Funds reduced their net long position by about 26k contracts, shrinking it to about +95k futures/options contracts. That selling pressure has taken prices back to some significant support levels, which we’ve outlined as a pocket from 1282-1290. That pocket represents the 100-day moving average and the 50% Fibonacci retracement, derived from the lows in May to the highs in July. On top of that, it happens to also be the breakout point from the June 30th acreage report. From the risk reward side of things, we feel that this support pocket is a great opportunity for the Bulls and Bears alike. For the Bears who’ve been short, this may be an opportunity to reduce exposure. For the Bulls, this is a spot to take a look at the long side. A break and close below that support pocket would be the “tap-out point” as it could open the door for additional long liquidation with the next support pocket not coming in until 1256-6. It’s important to note that there is a USDA report this Friday which could have big implications on price action, so managing risk will be important (as usual). CME Group offers new crop weekly options that expire every Friday. With new crop weekly options expiring on the day of this report, market participants may look to utilize these options as a cost-effective way to help manage price risk or express an opinion in the market. You can check out CME Group real-time data plans available on TradingView here: https://www.tradingview.com/cme/

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