Has the grains rally passed its peak?
Timing perfectly asset sales is a notoriously difficult task, much easier in hindsight, and only likely to be achieved by spreading sales over prolonged period.
However, there are pointers to at least consider in sales strategy.
Some are below – with thanks to, and adapted from, RJ O’Brien.
1) Watch for rapid/ongoing erosion in cash crush margins. Sometimes, as in August 2014 and June 2016, a tumble in the Chicago crush does herald a dip in values of soybeans themselves… but not always, as in September last year.
2) Watch for evidence of board inverses easing, which is a clear signal that farmers have accelerated selling to meet demand. This has in fact been a feature of corn and wheat markets of late, but not soybeans.
3) Watch for market being unable to rally on bullish news.
4) Be mindful of longevity of bull market. The case for elevated price levels erodes the longer prices remain elevated
5) Watch for evidence that open interest is topping out or eroding, which would indicate an outbound money flow.
6) Linked to this, watch the daily activity of managed funds. A slower buying pace, or the beginning of liquidation, will invite others to take profits.
7) Watch for penetration of key benchmark moving averages.
This is a key factor for many algos, for instance. Signally, corn futures for May closed below their 40-day moving average in the last session for the first time in August. However, the contract did leap back above that line on Friday.
8) Watch for sign that export sales pace has slowed considerably, signalling that importers are well covered or willing to wait for lower prices.
At this time of year, this is more the case for corn and wheat than soybeans, which typically sees a seasonal loss of market share to Brazil.
9) Watch for other signs of slowing demand, such as ethanol plant closures, meaning success by elevated prices in their job of destroying demand, and marrying consumption better to supplies.
10) Similarly, watch for signs of producers expanding output, meaning success by the market in encouraging extra output to meet supply voids.