FOCUS ON THE SOYBEAN MARKET: Accelerated soybean planting and perfect growing weather for the new crop continue to enhance the odds of seeing record yields and a substantial jump in the carryover come this fall. Though old-crop supplies remain historically tight and are prompting some traders to anticipate a demand-driven rebound, the weight of the substantial 1997/98 production potential and unwinding of old-crop/new-crop spreads has been difficult for the bulls to overcome. On the plus side are reports of more purchases of South American meal by China and Taiwan, the possibility of drought in India, South Africa and Australia (compliments of "El Nino"), and reports that only 20,000 bushels of soybeans remain available for delivery between Chicago and Toledo, Ohio. The view that world demand will soon shift back to the U.S., once South America runs out of exportable supplies, also continues to hold hope for the diehard bulls. Ideas that the recent spate of commodity fund liquidation has exaggerated last week's sell off is now giving the bottom pickers food for thought.

Thus far, the addition of another 10 million bushels of imported beans on the supply/demand balance sheet, which helped hike the carryover from 125 to 130 million bushels, has had little effect on the market. Indeed, with old-crop supplies still very tight, most analysts feel that the strong demand base could continue to support the old-crop contracts at least throughout the 1997-98 marketing year, which ends in August. And while new-crop production is expected to jump to 2.6 billion bushels, the outlook for increased usage has already forced the USDA to pare ending stocks by 20 million bushels. Of course, any trouble developing with the new crop, which could negatively impact yields, would be taken rather seriously. Thus far, growing conditions are near optimal. However, we continue to point to the unstable weather patterns of late, the sharp drop in the Southern Oscillation Index (El Nino) and the necessity of seeing a substantial increase in U.S. supplies to satisfy the growing world demand for soybeans and meal. Should U.S. weather conditions shift to hot and dry, and the yield potential decline by only one or two bushels per acre the soybean market could literally explode.

Technically, with prices having dropped nearly $1.00/bu. from the contract high and the stochastic deep in oversold territory, a rebound now appears in order. After violating the neckline of a "head-and-shoulder top pattern," and engendering measuring objectives down to $7.57/bu. for the July contact, the reversal registered from Monday's low suggests that a pivot point may have been posted. In this regard, a move back above $8.75/bu. appears to be an increasing possibility as the market retraces its lost ground. And should talk of a "squeeze" on the soon-to-be- deliverable July contract begin to surface, we could see old-crop prices launched back to the contract high in short order. The chart picture would vastly improve following a solid close above $8.50/bu.

Recommendation--Look to buy near $8.35/bu. Sell Stop--$7.95/bu., close only. Objective--Initially, $8.85/bu.

FOCUS ON THE WHEAT MARKET: On Thursday, Uncle Sam dealt another blow to the food grain bulls by posting a sharp increase to the 1997/98 winter crop production estimate. In its monthly report, the USDA now pegs U.S. winter wheat production at 1.604 billion bushels, up from the 1.561 billion. Making matters even worse, the USDA saw improving spring wheat conditions as reason to hike the total U.S. wheat production number by 43 million bushels to 2.304 billion bushels from last months 2.261 billion bushels. Ending stocks increased from 557 to 579 million bushels. As remains the case, slow export sales and a large world winter wheat harvests continues to paint a bleak picture for U.S. wheat demand. However, should El Nino raise its ugly head and negatively impact agricultural production in key world wheat growing regions, a drop in foreign production could keep foreign stocks as a percentage of usage at 18.5%, approaching the 18.2% seen in 1995/96. Indeed, the bulls continue to see the 1997/98 current world wheat situation having the potential to be as tight as the season just ended, especially if a major world producer begin to suffer yield problems. Should this occur, a sharp pickup in U.S. exports would place increasing demand on U.S. supplies and generate a corresponding rebound in both cash and futures.

Technically, prices are once again testing the trend line support extended from the December, February, and current June low. Accordingly, a close under $3.50/bu. could open the flood gates once again, and prompt a further decline to the low posted in early February at $3.35/bu. Conversely, should the bulls continue to regroup and rally prices back above $3.70/bu., the odds would then favor a partial retracement of the sharp April/June collapse and a rise back towards $4.00/bu. Aggressive traders should consider the following:

Recommendation--Look to buy near $3.50/bu. Sell Stop--$3.45/bu., close only. Objective--$3.75/bu.

FOCUS ON THE CORN MARKET: Ideas that the worst may behind the feed grain bulls continues to provide psychological support for old-crop prices. In the latest USDA Supply/Demand report, Uncle Sam, as widely expected, left this year's ending stocks unchanged at 909 million bushels and also chose not to alter the 1997/98 production estimate of 9.840 billion bushels. However, bearish traders continue to adopt a wait-and-see attitude and see the near perfect growing conditions here in the U.S. as improving yield prospects down the road. On the demand side, corn traders will be watching the cattle-on-feed numbers, to be released tomorrow, for signs of increased feed usage. Analysts anticipate May gross placements to be 17.6% greater than last year. This solid domestic demand with near-record cattle numbers on feed is expected to help off-set the slow export pace and keep traders anticipating a further rebound in old-crop futures. Thus far, Mother Nature has been kind to the early planted U.S. corn crop. However, should conditions change for the worse, the market reaction could see prices quickly recovering a percentage of the sharp April/May sell off, which saw prices drop nearly 57 cents/bu. In contrast to the ideal U.S. growing weather, the potential impact of El Nino on crops in China, India, Australia and South Africa remains a wild card that helps to underscore the need for a extraordinary U.S. corn crop. Should foreign yields ultimately suffer, U.S. export demand could skyrocket and the robust 1.349 billion bushel carryover projected for the new crop be parred back to a less comfortable level.

Chartwise, the market remains in a tight consolidation pattern that holds promise for bull and bear alike. However, the relatively low volume and open interest numbers suggests that, in general, traders remain complacent. Nevertheless, this situation could change in an instant should fundamental developments warrant renewed buying interest. For reference purposes, a move back to $2.92/bu. would equate to a 50% retracement of the April/May collapse. However, should the bulls really get serious, a 50% of the July/January drop would see prices back at $3.26/bu. Should the opposite occur and prices collapse below the May "double bottom" at $2.64/bu., the path would be cleared for a test of the contract low 3 cents/bu. lower. Violation of the contract low would give merit to projections of a drop to $2.50/bu. and most likely force the commodity funds into another technically inspired selling frenzy.

Recommendation--Aggressive--Look to buy under $2.70/bu. Sell Stop-- $2.64/bu., close only. Objective--$2.92/bu.

SEPTEMBER CANADIAN DOLLAR: Thus far, talk of Canada's increasing economic growth, low inflation and rising interest rates have not helped its currency. However, with prices attempting to find support at 7250 a buying opportunity may be at hand.
Recommendation--Look to buy near 7250. Sell Stop--7200, close only. Objective--7380.

AUGUST LIVE CATTLE: The specter of increasing on-feed numbers and weakening cash continues to plague the bulls. Support at 63 cents/lb. and the oversold stochastic suggest a correction may be at hand. Nevertheless, we see little reason for bottom picking and continue to prefer a sideline stance.

Recommendation--Stand aside.

AUGUST GOLD: Failing to ride the coat tails of palladium and
platinum, and reflecting concern over talk of central bank gold sales and a stronger dollar, the yellow metal continues to languish. A test of $340/ounce may uncover some buying interest. However, a sideline stance remains prudent.
Recommendation--Stand aside.

AUGUST LEAN HOGS: Ample beef supplies, heavy hog weights and weak product demand continue to pressure cash and futures. It appears that prices are destined to test trendline support near 74 cents/lb. However, we see even lower prices in the offing.

Recommendation--Maintain short positions. Buy Stop--83 cents/lb., close only. Objective--74 cents/lb.

WEEKLY CRUDE OIL: Plagued by increasing world supplies and rising domestic stocks, crude oil prices remain on a downward spiral. As swing patterns suggest that a drop to $16/bbl. is possible, we're looking to sell a rally.

Recommendation--Look to sell August crude near $20/bbl. Buy Stop-- $22/bbl., close only. Objective--$16/bbl.

SEPTEMBER U.S. TREASURY BONDS: With a slowing U.S. economy lessening the risk of Fed tightening, the bulls have reason to be optimistic. Indeed, projections of a rise to 114-00 in the wake of plummeting bond yields appear probable. Stay long.

Recommendation--Maintain long positions. Sell Stop--110-00, close only. Objective--114-00.

June 12, 1997
Siegel Trading Company
549 Randolph,
Chicago, Illinois

Consensus National Futures and Financial On Line Index
Technical Corner Index

Added to the WWW 06-14-97
Last updated on 06-14-97

Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com

wmeubank@ocp.kcmo.com