IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
312-207-1800(March 14, 2000) SOYBEANS: For the week ending Friday, March 10th, the May soybeans settled down 3-1/4 cents at $5.09-3/4.
The past several weeks' price action has been that of a consolidation mode. While prices have not been willing to sell off, beans have not been able to muster much strength. Support continues to be found just above the $5.00 level on the weekly chart. This, in my opinion, is the critical price support level. Prices have shown a seasonal tendency to rally through March as traders look forward to the Planting Intentions report that is scheduled be released on March 31st. Other than that, there is really not a whole lot of bullish information.
Last week the USDA released their monthly Crop Production report. Even though the market fell on Friday as a result of this report, I believe it to be a non-event and expect traders to continue to look forward. Little has changed fundamentally. However, on the technical side, I believe that this market is setting itself up in a very bullish pattern. That pattern may take a few months to really develop. Read further for more details.
Harvest is progressing well in South America and should offer some supply-side pressure to the market. However, shipping delays in the Brazilian ports could add very short-term support. Also, relatively wet conditions in the northern and central areas of Brazil may delay harvest a bit. There is some talk that harvest delays may affect the quality of the crop but I do not believe that to be a factor just yet.
Export sales have been holding up at better levels than a year ago and export inspections have also been stronger than last year. Domestically, our farmers are starting to concentrate on spring fieldwork and appear not willing to make additional cash sales now. Perhaps a rally of 20-30 cents would start to shake a few bushels out of the farmers' hands.
Over the short term, I expect the market to hold current support levels and trend higher. Support is found near the $5.00 level for a couple of reasons. First, $4.99 is roughly a 50% retracement level from the December lows to the January highs. Second, nice even numbers such as $5.00 often offer staunch support and/or resistance levels. In this particular case, this should be support. If and when the market breaks that support level, look for the $5.00 to become resistance. Look for the market to be capped by resistance at the daily chart gap near $5.22, which also coincides with a down trendline from the highs on 1/28 and 2/22, followed by the gap at $5.38.
Over the longer term I am bullish this market. I believe that soybeans have set themselves up in a "head and shoulder" bottom formation that projects anywhere from 75 cents to $1.00 higher. I see the market as currently trading toward the upper range of the right shoulder and it appears to be waiting for a reason to break above that. If that does occur, I feel that the market could easily reach the high levels reached in December 1998. On a weekly chart, that level is $5.94.
If there are any weather-related problems (that are really problems as opposed to hype) the chart projects to even higher levels. I would suggest using November call option spreads to take advantage of this. At this time the spreads appear to be reasonably priced and offer plenty of time. They also will benefit the most from any "new crop" difficulties.
This market is rapidly approaching what has been called the "too season." Soon we will be hearing from a variety of market and weather "experts" that it is "too hot, too cold, too wet, too dry, too whatever." Listening to these types of comments leads one to believe that our planting season will be made or lost on a daily basis. This often bring higher prices though the spring. Keep in mind, that no matter what, the crops will be planted. Nothing will keep the farmers out of the fields for too long. They typically get their jobs done. The so-called "experts" will do a good job of boosting prices to encourage planting only to sell things off as the crop starts to germinate. The real weather concerns may not be here until the late June to early August time frame.
Longer-term traders should now consider July options for near-term supply concerns or November options for new-crop opportunities. For short-term option trades, the May options should provide the best value but the least amount of time.
I believe that the contract low made on July 9 at $4.32 should hold as well as the island support near $4.68. Look for support near the $5.00, $4.90 and $4.75 levels. Resistance should be located near $5.15, $5.20, and $5.35.
RECOMMENDATION--Expect the futures to stay firm into the March 31st report. At that time, you will need to evaluate what the USDA has to say. Normally, I would look for the market to weaken slightly after the report and then begin another rally.
Buy the futures on breaks near the short-term support levels while using money management stops to protect your positions. Do not be afraid to enter the market, but at the same time do not be afraid to take profits as they are offered because the markets can often be fickle.
Jeff Fosse
Hosted by:
CONSENSUS, INC. AND INVESTORS
CO-OP
1737 McGee
Kansas City, MO 64108
(816) 471-3862
editor@consensus-inc.com