Food Price Inflation Risk About to Decrease?

October 15th, 2012

by Chris Kimble

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

A month ago the chart below was shared with Sector Sentiment Extreme members, reflecting that Soybeans had the potential to fall at least 30% in price (see post here).

Why did I predict a fall of at least 30% in price? The last two times traders held such extreme long positions in beans, they fell 30% in price last year (1) and 50% in price in 2008 (2), in the chart below.

A month ago Soybeans were trading at $17.36. Friday beans close at $15.22, falling 12% in less than a month.

A break below the bearish rising wedge support line (1) could see Beans fall another 15% in a hurry. The top chart's inset reflects that traders had a huge long exposure to beans a month ago, which suggested that if Beans would decline, a ton of traders were going to lose a lot of money (Soybean Prices Quote). Traders remain having a huge long exposure to beans as of last Friday, despite the 15% decline over the past month.

Long bean traders have lost a good deal of money over the past month. If beans break support, the traders that are on the long side could be forced to sell, pushing beans down all the quicker.

A grain decline could help ease food price inflation concerns.

© Kimble Charting Solutions

Website by the Boston Web Company