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OPINION

She eats cereal for breakfast

She eats cereal for breakfast
July 30, 2014
She eats cereal for breakfast

Last week the Australian Bureau of Meteorology and the UK Met Office confirmed that sea temperatures along the Pacific's equator were up to three degrees Celsius higher than the seasonal norm, meaning there was a 70 to 90 per cent chance El Niño conditions would persist from late summer to year-end. The effects start around Christmas, hence the 'little boy' name, heating the air between the International Date Line and South America. Westerly winds develop, counteracting the natural easterly airflow caused as the world spins on its axis. This forces hotter, wetter weather across the Americas; conversely conditions in South East Asia and Australia are often drier than usual, monsoons lighter and droughts often seen.

Soybean futures, traded on the Chicago Mercantile Exchange, are quoted as US dollars per bushel for a 5,000 bushel (136 metric ton) contract. Prices sold off dramatically in Q2 and Q3 2014, rather like Crude Oil. They are now stabilizing around $9.00 (£5.84), just as they did in 2008 and 2009, in what might turn out to be another intermediate low. Chances are they might rally slowly, rain harming key export growing areas in Argentina, Brazil and Paraguay, aiming at $12.50 over the next six months. Keep in mind that price gains might also be caused US dollar weakness.

 

  

Wheat futures, another CME Group product, at just over 450¢ per bushel are close to their lowest in a decade - 200¢ being the lowest price of the last 45 years; cheap, whichever way you look at it. Prices have not dropped further this year and might form a bottom, a rally ought to gain traction on a break above 550¢. We would then expect a fairly sharp squeeze up to 730¢. Note that drought-ridden California stands to gain from any extra rainfall.

 

  

Rough Rice, also a CME futures contract, is priced as cents per hundredweight and it too has slumped since last summer. At 9¢ it is back to 2010's lows, in turn the cheapest in a decade. Good news for consumers, not so for farmers. Technically oversold this quarter, there is a chance that it too will try and form an interim base.

  

 

Our last specimen is rapeseed, now known as canola in North America, an increasingly important crop, with dazzling yellow fields. Traded on the Intercontinental Exchange since the 1960's, it is used as a substitute for other edible oils, for animal feed, and increasingly as biodiesel. Prices, quoted in Canadian dollars per metric ton, formed a double bottom chart pattern at the end of last year, just ahead of the 2008 and 2009 lows, but have struggled to make any meaningful upward progress this year. We feel it is just a matter of time and a sustained break above C$500 will get going in the second half of the year. This should then lead to a sharp, short squeeze to the C$600 area.

 

  

Debt-ridden farmers will keep their fingers crossed hoping The Trader is correct. It is worth noting that the US farmland index has dropped for 17 consecutive months to April 2015 despite crop prices stabilising. Those in animal husbandry and food processing will curse.

  

MORE FROM NICOLE ELLIOTT...

Nicole Elliott is a long standing Member of the Society of Technical Analysts and has just taken over the IC's trading coverage. She is regularly interviewed and quoted by the financial media, is a conference speaker, and author of several books on charting.

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