This article is brought to you by:
CONSENSUS
IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
312-207-1800(March 28, 2000) SOYBEANS: For the week ending Friday, March 24th, May soybeans settled down 6-3/4 cents at $5.30-3/4.
The soy complex paused a bit last week as traders took some of the weather premium out of the market. May beans posted an inside week on the chart and that leaves few clues as to future direction. This market has become a weather market as forecasters, traders and just about everyone else try to guess what the weather will do. I would expect this week to be "relatively" rangebound until Friday morning after the USDA Planting Intentions report. Unless there is a sharp move early in the week, I would look for most traders to look to those numbers for the next major push. Look for soybean acreage estimates to come in around the 74.75 to 75.25 million-acre range. This would be a record amount of acreage for beans and should offer some fundamental market pressure at that time. I am still bullish, but I do not rule out the chance for the market to test both sides of the $5.40-$5.15 range.
The recent concerns for a drought do have some validity, as this has been the driest winter on record, according to the NOAA. The news is starting to support the technical picture with traders generally eager to support a "doom and gloom" market forecast. Everyone wants to buy a disaster before it happens. I would caution those who are predicting crop disaster in March. This is precisely the situation that I have been mentioning over the past few months. It is too early, in my opinion, to take summer weather forecasts too seriously. They may turn out to be correct, but think about this for a moment. How many times have you watched a weather forecaster tell you that 5 days from today the weather was going to be sunny and warm, only to wake up on that day to find it cold and rainy. Now expand that margin for error by 30, 60 or 90 days and you will see my reason for skepticism.
Situations like this often present a greater level of volatility than is normally present in the market and this can present a danger to the smaller traders. It's my opinion that during periods of higher volatility, like we are now experiencing, it's often prudent to exit profitable positions at the end of the week and eliminate the 3 days of unprotected market risk.
Over the short term I expect the market to fall back from the current resistance levels near the $5.38 area. I also expect the market to hold current support near the $5.22, $5.18 and $5.15 areas. If the $5.38 level is successfully broken expect resistance levels to become $5.40, $5.45 and $5.50.
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 a move from 75 cents to $1.00 higher. I view 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 this breakout occurs, I feel that the market could easily see the level reached in December 1998, when the market hit $5.94.
If there are any weather-related problems (that are really problems as opposed to hype) that catalyst could project this market 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 and apparently entering what has been called the "too season". 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.
Option 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
SOYBEAN MEAL--July soybean meal appears to me to be on a bull run. Prices appear to be well supported into the $1.65 to $1.70 area. If the projected forecasts of a dryer spring hold true, I believe the prospects of higher meal prices could unfold.
This week the USDA will estimate what planted acreage will be for the primary U.S. grains. Ahead of this report I am not looking for any major rally. With underlying demand firm for soymeal, it is my belief that even if estimated acres are large for soybeans, a "buy recommendation" would still be warranted in July Soymeal.
RECOMMENDATION--Traders might consider purchases of July soymeal between $1.65 to $1.70.
Place stops at $1.62. My first upside target is $1.76 and then possibly a run to $1.85. Option traders can consider purchases of the July 180 calls. Spread traders might consider establishing long meal/short oil positions in the July futures.
Boyd Baker
Hosted by:
CONSENSUS, INC. AND INVESTORS
CO-OP
1737 McGee
Kansas City, MO 64108
(816) 471-3862
editor@consensus-inc.com