BARNES BROKERAGE CO., INC.

30 S. Wacker, Chicago, Illinois

(November 5, 1997) SOYBEANS: A consistent trading pattern has emerged in the bean complex since Labor Day that can best be visualized by the simple “beach ball analogy.” Did you ever try to hold a beach ball under water? It works for a while but then the natural buoyancy of the ball forces an upside explosion. This is exactly what has happened to the bean complex in the last couple of months–2 different times!

In the first instance, a record 2.7 BB crop was combined very quickly and easily leading to a modest 30-cent drop (650-620) over a 4-5 week period–and then kaboom–November beans literally exploded for an electrifying $1.10 rally (620-730) in only 8 trading days.

Likewise, in the second instance, a potential Asian currency crisis dismantled stock markets worldwide and in the grain trade created widespread fears that exports would suffer dearly–in turn forcing a 40-cent selloff in November beans (720-680). When the export fears were allayed, the market quickly recouped these losses in just 4 trading days.

		USDA		    USDA
		Nov 10	Est.	Oct.	Sparks	Leslie
Soybeans	?	2.737	2.722	2.716	2.729

In summary, the past two months have witnessed major “bear events,” first a record crop and second a potential disruption of exports–either one of which alone would have sent the market hurtling to its lows in past years. But not this year! Instead, November beans sucked it up, shrugged off the bad news, and amazingly marched upwards (not down) in a stunning display of contra-seasonal strength the likes of which we've never seen before! And don't forget El Nino is in the wings! At this writing, November beans are only 30¢ off contract highs–a simply remarkable performance considering...!

OBSERVATIONS AND FUNDAMENTALS–1) Meal's The Leader–Clearly leading the upside charge with a limit-up on Monday and a match of contract highs (239.50) today.

2) A sympathetic USDA said last week they would consider export credits to the Far East if exports began to soften.

3) Harvest is all but over with 75% of corn in and 89% of beans cut.

4) Exports on Monday 11-3 were huge at 45 MB (25-27 exp.). In fact, through October, bean exports were up 43% from 1996.

5) South America, especially Brazil, is too wet to plant in some areas–all eyes will be on their crop, being the next major bean supply (late spring.)

6) Cross currents make the grain complex a tough read lately–for instance. Today November beans closed at 7-month highs while December corn and wheat closed on 4-week lows.

The incredible upside resilience soybeans have displayed in recent months have the bulls strutting about–and why not? Crop problems anywhere in the world in 1997-98 will force beans to go vertical, especially considering the still relatively low stocks and prices. But the ride may be rough–so use option strategies to establish positions with staying power.

William D. Moore

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