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COMMODITY FUTURES FORECAST
WEEKLY REPORT
Prepared by
Commodity Futures Forecast
Soybeans Hold Strength
Our attempt at picking a top in January soybeans was more conservative as we waited for a rally to 7.31 and 7.37. Thereafter, we quickly moved our stop to break-even when prices dipped to our 7.19 first objective. The subsequent rally took us out. Recent action suggests strong overhead resistance remains just below 7.50. A breakout above 7.50 would confirm fundamentals calling for more substantial exports.
Farmers I have surveyed from DeKalb, Illinois to Norfolk, Nebraska report a typical harvest environment. Most are surprised by the strength into November and wonder why cash sales have not influenced prices. If November soybeans climb above January before expiration, we will have a firm indication of a post harvest accumulation. This implies the existence of export commitments and further backs up today's rumors.
Despite these circumstances, I believe there is still potential for a seasonal correction. However, once we pass November delivery, we are entering the transition period. This is when traders focus upon Southern Hemisphere producers. The fear that El Nino will devastate Australia and South America remains an anticipation rather than reality. So far, much of the Pacific Rim has been spared. Certainly, Indonesia has been hit with dry conditions and there are spots of drought, but Australia and South America have adequate moisture, for now.
This will be the critical factor for deliveries through March. Then, the North American season takes over. This is why we placed the bull spread in July/November while continuing to test short trades in the harvest deliveries. It appears there is still potential for a correction below $7.00 before pressure mounts on the July contract.
Middle East tension could also play a role in bean and corn prices. Immediate conflict stalls export demand and could dip prices. A resolution would be business as usual.
In the meantime, winter wheat is moving along and I believe we will have a bearish bias over the next few weeks. This does not support our bull spreads in March/July and May/July wheat. However, we are close enough to carrying charges that I feel we are safe. If El Nino produces excessive moisture across the south central and plain states, we could see wheat perk up. This is a normal wait-and-see proposition for spread trades.
All That Glitters
It is difficult to be a gold bear when prices are approaching the $300/ounce barrier. Most precious metals advocates are watching in disbelief as their beloved markets make new interim lows. Rumors that European central banks intend to abandon gold as a reserve asset continue to play against gold and silver. The bust in copper adds fuel to the decline because producers are increasing output and precious metals will suffer as byproduct.
Equities
Briefly, world stock markets are still trying to adjust to unprecedented volatility. Pacific Rim uncertainty has heightened concern over liquidity. For the average investor, stock indices are still too expensive and risky. Even with the reduction in the S&P 500 contract size, index contracts are difficult to approach. The topping action is still evident. I may look at some option strategies if premiums provide an opportunity.
November 13, 1997Philip Gotthelf
Commodity Futures Forecast
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Financial Commentary | Consensus National Futures and Financial On Line Index
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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