Options play: When will corn and beans break out?

February 1, 2016 03:18 PM

As a broker of several years I say "when" because it's just a matter of time before beans and corn break out.

Fundamentally, in the grain markets it would seem that supply is greater than demand and that is making it difficult for the grain markets to break out to the upside. I believe that it's just a matter of time before we see higher prices in corn and beans though. The question is: What will cause this? I would bank on El Nino 2016 to be the prominent factor in pushing beans above $9/bushel and corn above $4/bushel. The problem with that is here in the U.S. weather problems could not possibly have an impact until planting season several months down the road. However, in South America we could see problems sooner rather than later. Because if one thing is for sure it's that this El Nino has caused very unpredictable weather patterns. From 50 degrees in February in Chicago to 115 mile an hour winds and thunderstorms in southern California. So I'm looking on the bright side of El Nino 2016 and how it can help prices move higher. Call me an optimist.

Technically, my support areas in both the corn and beans have held to my satisfaction. My major support area in the corn market is $3.50/bushel and in the beans $8.50/bushel and over the last several days we have tested these areas many times and held. I have added my favorite technical indicators to the charts below. I have coined them the "10/20/50/BB Trend Finder". They are the 10 (red line), 20 (green line), and the 50 (blue line) day Simple Moving Averages or SMA's. I have also added Bollinger Bands or BB's (light blue shaded area) and Candlesticks (the red and green bars with the candle stick wicks, and on this daily chart each bar represents one day of trading). These few technical indicators can tell me many, many different characteristics about the market at a quick glance. 

 

 

 

In addition to where support is, these indicators on the daily charts tell me that soybeans and corn are in a sideways trading range and the market seems to be building a base. This is fairly easy to determine as all of the indicators in my "10/20/50/BB Trend-Finder" are pointing sideways. The big question then is, are these markets building a base to move higher or lower?

 

About the Author

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.