DECEMBER CORN: The prospect of declining feed import demand in the Pacific Rim, and fears of increased European and Chinese selling, remain a dark cloud overhanging the corn market. Considering that the outlook for increased usage is critical to the bullish scenario for corn prices, the negative reaction we've experienced over the past few weeks is quite rational. The drop in the export number, registered in the USDA November Crop report, suggests that the pace of demand, mostly responsible for the sharp October rally, could finally be ebbing–which leaves this market vulnerable to further long liquidation. With the 1997 harvest now completed, and reports of grain being piled on the ground in Kansas and Nebraska, exports will remain this market's fundamental focus and invoke the appropriate reaction from grain traders as weekly reports are presented. Should any further disappointment surface on the export front, corn will have an increasingly difficult time maintaining current price levels. Cumulative sales have reached only 27.7% of the final USDA estimate, as compared with 42.8% on average for this time of the year. While the low world stocks to usage numbers suggest increasing global needs, the point at which end users decide to return to cover their extended needs is debatable. Should China or the Europeans decide to cease selling corn, the U.S. would become the obvious beneficiary. But, until this occurs, we expect to see users continuing to flock to cheaper markets, which should keep futures prices on the defensive.

Chartwise, we see December corn now testing the trend line support slope near $2.70/bu. Should the bears push prices through this level, another 5¢/bu. could fall by the wayside. A drop all the way back to the October low at $2.55/bu. will not be ruled out.

Recommendation–Look to sell near $2.80/bu. Buy Stop–$2.88/bu., close only. Objective–Initially, $2.65/bu.

DECEMBER WHEAT: Lacking any new problems over supply, and with demand continuing to wane, the food grain market remains in the doldrums. With Argentina emerging as a cheap supplier of wheat, it's feared the traditional buyers, such as the Europeans, will remain less aggressive buyers, much to the chagrin of U.S. exporters. Should corn and beans continue to head lower, additional selling pressure could spill over into wheat. The last USDA world production estimate indicated a record 603 million tons, up from the previous record of 588 million set in 1990. And even though demand is expected to reach a record 583 million tons for the current crop year, ending stocks continue to grow and will likely reach 128.5 million tons. This is the largest carryover since 1993, when ending stocks posted nearly 145 mmt. According to grain experts, at the end of the current season, world ending stocks will equal a comfortable 2.6 months of demand. Accordingly, lacking a sharp increase in usage above the record pace, this market could face some hard times. Currently, the nearby December futures are perilously close to the contract low posted on July 8th at $3.34¾/bu. A close into new low ground could open the floodgates once again and send prices back to next support on weekly chart found near $3.20/bu. All things considered, projections for this contract to decline below $3.00/bu. cannot be ruled out. We continue to see further weakness ahead.

Recommendation–Look to sell near $3.45/bu. Buy Stop–$3.50/bu., close only. Objective–Initially, $3.20/bu.

JANUARY SOYBEANS: The onset of ideal planting conditions in South America and talk that our domestic pipeline is finally filling with newly harvested soybeans kept the bulls on the defensive throughout the week. A sharp drop in soyoil on the heels of the NOPA monthly Crush report, which showed greater than expected oil yields, also weighed on the complex, especially with soyoil open interest recently posting a record high. Another good weekly export figure kept the market from suffering more than it has. However, in light of the technical weakness, and growing ideas that demand could be dropping off into the end of the year, bean prices may be in store for some further consolidation in the weeks ahead.

On the daily bar chart, we view the decline from the contract high, the steady drop in the slow stochastic and the two chart gaps left during the month of October. The first gap comes into play at $6.97/bu., and the second at $6.80/bu. In our opinion, January beans are now vulnerable to further near-term deterioration that could see a drop back to the lower gap at $6.80/bu. For this reason, we've decided to cancel our buy recommendation at $7.05/bu. and, for the time being, attempt to capitalize on the projected weakness.

Recommendation–Look to sell against $7.20/bu. Buy Stop–$7.35/bu., close only. Objective–$6.80/bu.

DECEMBER U.S. TREASURY BONDS: With long bond yields now approaching 6%, and prices about one-half point off of the 120-00 level, the odds of seeing some serious profit taking have markedly increased. While trader sentiment remains mostly positive, the approaching holiday week, along with another three- and five-year note auction, diminishes the chances for a surprise economic event propelling this market sharply through the psychological 120-00 level. In addition, credit analysts now claim that the bond market is not paying much attention to either U.S. economic news or the strong rebound in the U.S. stock market. Demand continues to surface from the overseas markets that are still nervous over the recent Asian economic turmoil. In this regard, concern continues to build over the impact of the Asian crisis on Japan, whose banking system is now feeling the aftershocks. In our opinion, the belief that yields will find a short-term bottom at 6% spells trouble for the bulls who, up until now, have had very little to complain about. Seeing prices nearly reach our 120-00 upside target, we too feel that a near-term high is almost in place and a correction back to the 117-00 level, a likely outcome.

Recommendation–Look to sell above 119-00. Buy Stop–120-10, close only. Objective–117-00.

DECEMBER LIVE CATTLE: Another negative Cattle on Feed report showing lower than expected marketings for the month of October had little impact on “fat cattle” traders this week, as seasonal bookings and spread activity supported the nearby December contract. Nevertheless, fed slaughter continues to come in under expectations, indicating poor packer demand amid weakening profit margins. Forecasts for above normal temperatures also suggests that feedlot operators will have little or no difficulty moving animals throughout next week. However, considering the strong competition from pork and poultry, retail beef demand could continue to falter, further limiting packer uptake. And with Thanksgiving Day bookings now complete, experts claim that retailers will have plenty of product to move following the holiday period.

From a technical perspective, with traders anticipating a seasonal low, the recent rise in open interest leaves the market vulnerable to liquidation and stop loss selling should prices begin to falter. Failure to break out convincingly above the 68¢/lb. could also provide the catalyst needed to send prices back to 66¢/lb. where we'd expect the bulls to regroup. We're looking to sell the next rally.

Recommendation–Look to sell near 68¢/lb. Buy Stop–68.50¢/lb., close only. Objective–66¢/lb.

DECEMBER COCOA: A highly oversold stochastic and the proximity of prices to strong trend line support enhance the odds for a near-term rebound. Reports of acute shortages of Indonesian cocoa, amid a slowdown in Ivory Coast mid- crop arrivals, may finally provide the incentive for the well- entrenched bears to take a breather. Additionally, with many believing that the recent spate of currency related liquidation has finally past, the market could receive a further boost from funds looking to do a little bottom fishing. Reports that growers in South America and other regions are beginning to question the economic sense of growing cocoa at depressed price levels, may also provide a psychological prop for the market, should this attitude become widespread. However, this potential development would have little impact on the nearby December contract.

Considering that the USDA projects the Ivory Coast 1997/98 production prospects at 1.18 million tonnes, versus the year-ago figure of 1.13 million, and with the seasonal commercial demand already being filled for the holidays, it appears the bulls will have difficulty mounting more than just a short-term correction. Accordingly, should prices find a bottom near $1550/mt., we'd look for a quick jump back to the November high at $1634/mt., but little more.

Recommendation–Look to buy near $1550/mt. Sell Stop–$1500/mt., close only. Objective–$1630/mt.

November 20, 1997 Siegel Trading Company, Inc.

549 Randolph, Chicago, Illinois

Technical Corner Index

ASPRAY'S GLOBAL TRADER
COMMODITY INFORMATION SYSTEMS | WORLD COMMODITY PERSPECTIVE
FORTUCAST | G.I.S., WINTREND SYSTEM
GREENWICH NATWEST FUTURES DAILY TECHNICAL RESEARCH
HALCO TRADING STRATEGIES | SIEGEL | TECHNICAL DATA MARKET REVIEW
THE VOLUME REVERSAL SURVEY | VIEWPOINT TECHNICAL OUTLOOK
THE WEEKLY RE-LAY
WESTFALIA INVESTMENTS

Consensus National Futures and Financial On Line Index

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

wmeubank@ocp.kcmo.com