wmeubank@ocp.kcmo.com
(May 9, 1997) SOYBEANS: So-so exports encouraged bulls to take profits, but good buying was seen on the lows. If we see a trend of lower exports, I would expect that support will begin to evaporate.
High prices may be beginning to ration demand. Brazil has been an aggressive seller. Unconfirmed rumors that China was seeking meal and beans have supported the market this week, as did reports of lowered production from Argentina and Brazil. However, the South American news was widely expected. It does not seem likely that China is buying U.S. beans, as it is now possible to ship beans from Brazil to the U.S. and resell them at a profit. If it turns out to be true (Chinese buying interest), it could mean that their demand is so strong that they cannot afford to wait out shipping delays. That strikes me as bullish. They have aggressively expanded livestock production, and meal will be needed to feed the animals. Keep an eye on meal for a sense of the direction for beans.
Technically, some traders will begin to see July meal as having a double top. However. I still lean to the long side as the place to be. Stocks are tight, and likely to get tighter, and usage, while showing some cracks, is still strong. We may see Brazil as an aggressive seller now with an interest in buying November beans further down the road to meet future needs. If there is no crop problem, that could be an excellent strategy for them to pursue.
Conservative traders should stand aside or use options. Aggressive bulls might consider purchases of July on pullbacks of 10-15 cents with stops of 10 or so cents, or on a test of the mid-upper 870's with 10-20 cent stops. Look for a test of the highs, possibly new highs. Resistance may continue to appear near 895 and 900. If you're a bit on the conservative side, a hard break could take the beans into the 860's. That is probably an excellent buy. A new high is bullish and suggests that the uptrend is underway again, but be alert for reversals that are becoming all too common. Objective is open. Support lies near 875, 865, 860 and 854. While an upward move for the November is mostly dependent on the weather, if July beans continue to gain, November will follow. The market is looking at the highest acreage since 1984, so November may have trouble holding gains due to a perception that an abundance of beans is not that far away. Keep alert for weather problems, as they will be very bullish. Charts are a bit improved, but still suspect.
Aggressive traders might sell November beans on a test of 705-710 with stops of 10 or so cents. Look for the low-mid 690's, possibly the 680's, for good support to develop, and consider buying in that area with stops of 10 or so cents. Option traders should be buying calls on weakness.
M. Steven Morgan
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