JANUARY SOYBEANS: Grain markets have lately been subject to spillover volatility from the financial markets, based on the currency crisis in Southeast Asia. Currencies in Thailand, Indonesia, Malaysia and the Philippines have declined between 33% and 50% since July, casting doubt on their ability to afford grain imports.

Soybean usage for the first week of October set a record at 72.6 million bushels. USDA estimates that crush plants will operate at close to their weekly capacity of 36.6 mbu. near term. The export pace remains active as USDA latest estimate looks for 980 mbu. and this figure could be too low.

October-December soybean usage is expected to be higher than usual at 812 million bushels, versus 768 million last year. This usage level creates a bullish early season stocks-to-usage ratio. However, world bean stocks are up and large South American plantings could result in record exports.

Plantings in Brazil and Argentina are expected to increase 10-15%. Private forecaster Safras estimated Brazilian production at 29.8 mmt., versus 29 mmt. by USDA. Brazilian plantings are running behind the normal pace due to too much rain in the south and not enough in the north.

Dry weather in Argentina during wheat planting season (May-July) may result in more single-cropped soybeans. Argentine production is forecast at 15 mmt. Barring El Nino problems, total South American production could approach 50 mmt.

Until recently, analysts looked for lower soybean acreage in 1998 as producers in the U.S. and elsewhere were expected to plant more grains for rotational purposes. However, the bean-to-corn ratio is favoring beans, which could increase acreage. Tight corn stocks and feeding ratios are also key factors regarding such acreage switches.

Technically, patterns on the January soybean market suggest major resistance at 750-775 with pullbacks to the 679 region possible. If we do complete a 5-wave advance on beans, we would project a 820.75 or a max of 829. Important resistance is at 763 and 784, and it is possible that unless we get a drought scare in Brazil, we will never get up above the 8.00 region. Linear cycles are friendly into December 8, with a correction possible for a week and then a recovery into the end of the year.

We do not have enough data for January to see when we will top-out, but with 2-cycle highs and 3- cycle lows for the month, we are likely to reverse within the first few weeks as tax selling enters and northern Brazil will have a normal crop, we should be lower into the cycle due into March 11.

Weekly chart patterns could allow a fall to the 589 region if current fundamentals and strong South American crop develops. We need to complete 1998 weather cycle work in order to get a feel whether we have any chance for a drought this year. Our major 9.5- year drought cycle is in place for the next 6-8 months and we could see a rally April-June of this year.

Producer's Strategies–Exit March call options into early January and replace with May puts as a partial hedge against falling prices. Consult future issues on a 1998 plan for hedging new crop. Sell cash beans in early January–especially if we reach up to the 800-820 region basis January.

Trading Strategy–Hold March calls into early January.

Weekly Chart Trend–Higher into January 1998.

Daily Chart Trend–Lower to 684.

Support/Resistance–Breakout: Buy pullbacks into early November.

Breakdown: Sell 5.97 stop with a 6.15 stop. Exit 5.76.

Turning Points–Major Entry/Exit Dates: November 24, December 8, December 26.

DECEMBER AND MARCH CORN: Corn managed to rally during harvest pressure during our friendly cycles but has corrected since. Linear monthly and weekly chart cycles are too mixed to give a very clear picture, although lower prices into February appear likely. Seasonals favor a rally here and geocosmic cycles are positive into December 8 and then lower into December 26 and higher into the first few weeks of January when farmer tax selling should hit. March corn is likely to hold the 281 region if December falls to its weekly chart target of 272. Cycle highs appear to dominate into November 24 with cycle lows dominating November 24-December 1. Expect a rally into December 8 and then lower prices into Christmas. Technically, weekly charts would allow a rally to 360 on the weekly chart and world fundamentals would support such prices.

USDA's November report numbers showed a 100 mbu. decrease in exports to 1.925 bbu., mainly due to their increase of Chinese export to 4 million tons, versus 2.5 million last month. These adjustments boosted their U.S. carryout forecast to 928 mbs., versus 781 mbu. last month and about 50 mbu above the average trade guess.

Longer-term fundamentals look more bullish for corn, especially world ending stocks at 65.5 million tons, the lowest level since 1975/76 and 23% below last year. Chinese ending stocks are forecast to be down 50% form last year due to bad weather, which could make them a net importer of corn. Mexican production is expected to be lower by 2.5-3 million tons due to a combination of dry conditions and hurricane damage. World coarse grain stocks are projected to be the lowest in history, although a larger supply of feed-grade wheat should limit gains.

Our weather cycle work shows only a 50/50 chance of drought in the U.S. Corn Belt following this year's El Nino. Major droughts did occur following El Nino years in 1983 and 1988 but the droughts of 1974 and 1980 were not preceded by an El Nino. Moreover, this year's El Nino is expected to last longer than usual, possibly even into the fall.

If a major 1983 or 1988-type drought does occur next summer, corn prices would be off to the races, especially since stocks are already tight. Worst case production estimates based on 1983 and 1988 losses would be 6.9 to 7.8 billion bushels, while domestic use alone is expected to be 7.5 billion. Yields of 105 would equal 400 cash, 130 yields would equal 250/275, and 138 yields would equal 220/250.

South African crop areas have turned drier but October rainfall was near normal so it's too early to confirm El Nino drought effects. USDA has forecast South Africa's 1998/99 corn exports at 1 million tonnes.

Our technical work still suggests that a rally to 310 basis March. The downside risk is probably 2.70 and the market is certainly not going to fall below 2.50 this year with world stocks so tight and El Nino concerns on the horizon. We are not as anxious to hedge December 1998 corn as we have been in the past given world conditions but some partial selling would be warranted.

Producer's Strategies–Producer's needing to sell corn in the 1997 tax year should probably watch the December 8 time window or when March reaches the 310 region. If you have 1998 tax selling needs, you may want to watch the first few weeks of January and then the June 1998 cycle high. Any world weather aberrations could push us up to 360. Still, comparable years like 1994-1995 suggest that upside prices may be limited and given the new Farm Act, the pressure will continue on the downside. Early estimates of the 1998 corn crop are extremely bearish, with acreage at more than 83 million resulting in production in excess of 10 billion bushels. It would not hurt to have at least 25% of your crop given the 1994-1995 analogue.

Speculative Trading Strategy–Look to take profits on calls when March corn reaches the 310 region.

Weekly Chart Trend–Higher to 310 basis March.

Daily Chart Trend–Bottoming and higher into December 26.

Support/Resistance–Breakout: Buy 3.11 stop with a 2.94 stop. Exit 3.16.

Breakdown: Sell 2.49 stop with a 2.65 stop. Exit 2.40.

Turning Points–Major Entry/Exit Dates: November 24, December 8 and December 26.

MARCH AND DECEMBER CHICAGO WHEAT: Wheat has remained in a tight trading range and that range is likely to continue between 350-380 on the December contract and 354 and 395 on the March contract. Five-cycle highs peak into December 5 and the market is likely to make a run for the upper end of the trading range but we are skeptical that the market will be able to make new highs back toward the 400 region basis December. The July winter wheat contract is showing a very small chance of moving up to the 400-405 region and we would jump on any hedges at those prices. A winter kill scare could easily push prices up there but we are more likely to fall to the 360 or 340 region first.

Cycles suggest a secondary high into the middle of February and if we did get a winter kill scare, it could emerge then. Cycles look particularly weak into the March 9 cycle low and seasonals will probably push the market lower most of next year. Sideways congestion could emerge during seasonal support in December and January so it will be difficult to short this market early. Fundamentally, El Nino has not had much of an impact on wheat, even in Australia, where drought is common in El Nino years. Beneficial rains in September have boosted their crop size to 17-18 mmt., still less than normal but hardly a disaster. In Argentina, El Nino has increased rainfall in October and improved winter wheat prospects.

Rainfall in the U.S. Plains was plentiful in October (100-400% of normal for most states), giving the dormant crop enough soil moisture to enter dormancy in good shape.

Record world production of 603 million tonnes is expected to result in ending stocks of 128.5 million tonnes, the largest carryover since 1993. The stocks-to-usage ration is expected to grow to 22% versus 18.7% last year and 25.3% in 1993.

All this implies that our technical target of 313-328 is easily reachable but it is too early to find fundamentals to support our 282 monthly chart low due into November 1998.

On the bullish side, a dry summer in Chinese wheat areas is expected to deplete water levels in their irrigation reservoirs, limiting their ability to irrigate the wheat crop before the rainy season starts in May or June.

Given no Farm Act protection producers should keep an eye on 1998 contracts for hedging as cycles look bearish into oat least November, 1998 once topping is complete into seasonal demand. Watch particularly the December 5 and mid-February time periods for hedging winter wheat, especially if we reach up to the 400-405 region.

Trading Strategy–Consider hedging 50% of July 1998 wheat with put options for the December 8 cycle high.

Monthly Chart Trend–Lower to 282 into November 1998.

Weekly Chart Trend–Topping into December 5 and lower to the 313 region.

Daily Chart Trend–Topping into December 8 and lower to 328.

Support/Resistance–Breakout: Buy December 409.50 with a 399 stop.

Breakdown: Sell December 3.45 stop with a 3.75 stop.

Turning Points–Major Entry/Exit Dates: December 8 and December 29.

Prices have remained in tight ranges and fundamental value is currently in the 70.00-70.50 region. Weekly technical support is strong at 69.65. Lower prices are still likely toward at least 66.55. We would be surprised to see the market trade above 74.10. Linear cycles suggest 5-cycle lows into the November 24 time window with a sideways recovery into December 8 and continued weakness into December 26. We would consider buying at the open of December 29 on the March contract with higher prices likely into mid-January.

Cycles continue to project lower prices into at least December 26. We expect that prices will continue to consolidate lower with a downward bias. Should we reach the upper end of the trading range, producers may consider hedging or cash contracting.

Cotton got mixed news from USDA's November Crop report, which increased the U.S. crop to 18.484 million bales, the fourth-largest crop on record. They also raised the China crop by half a million bales. But overall, world production came down due to cuts in India, Pakistan Uzbekistan. U.S. exports were raised by 100 million bales to 7 million.

Chinese imports will continue to influence how much cotton will rebound. China's strategy to reduce imports by offering incentives to use large domestic stocks is meeting with limited success so far, mainly because imports often offer better quality.

Decent export demand and mill consumption should keep December cotton above the 66 level this winter. We do not see much of a speculative market here nor do we see much concern for producers since downside is limited.

Trading Strategy–Continue to favor shorts.

Weekly Chart Trend–Lower to 66.55 into December 26.

Daily Chart Trend–Consolidating and lower.

Support/Resistance–Breakout: Buy 75.95 stop with a 73.05 stop.

Breakdown: Sell 69.16 stop with a 71.10 stop. Exit 64.50.

DECEMBER COCOA: Cocoa has fallen since our last report and cycles continue to suggest lower prices into mid-January. The earliest cycle low could be due by the week of December 8 with a rally likely into December 22 or December 26 and a pullback or secondary low due into January. It's difficult to estimate where we will stop but the 1445 and 1400 region should provide major support.

World weather prospects have improved of late, especially for West Africa and Indonesia, leading analysts to re-think ideas of a 1997/98 deficit of 200,000 tonnes. Still, reduced production in El Nino years is well documented, although declines in all three cocoa-producing regions have never occurred. So far, Asian producers have sustained the greatest damage, especially in Indonesia, which suffered extensive drought damage. Latin America has also seen reduced rainfall. West Africa, on the other hand, has enjoyed relatively normal weather. Near- normal October rainfall in the Ivory Coast has helped their main crop, which could still come in at a record 1.05 mmt. Ivorian producers there are sending supplies to port at near-the-normal seasonal pace, about 19,000 tonnes for the first half of October. The outlook for their mid-crop, harvested starting in May, look excellent. Most analysts estimate final 1997-98 Ivorian production at around 1.15 million tonnes, midway between the size of the last two years.

Quarterly grinding figures, a leading demand indicator, are fixed with increases in the Netherlands and the U.S. being offset by declines in Germany and the UK.

Trading Strategy–Look to take profits on shorts by the earliest on December 8. Consider swing trades into the December 22 high and the January low and then consider new position longs from the January low.

Monthly Chart Trend–Higher to 1968 or 2048 into 1999.

Weekly Chart Trend–Lower into late January to 14.45.

Daily Chart Trend–Topping and lower.

Turning Points–Breakout: Buy 18.90 stop with a 17.89 stop. Exit 19.67.

Breakdown: Sell 15.89 stop with a 16.60 stop.

Support/Resistance–Major Entry/Exit Dates: November 24, December 8 and December 26.

DECEMBER AND MARCH COFFEE: Coffee has fallen to the lower realm of its breakdown point and if we manage a weekly close below the 144, we are probably going to fall quickly to the 126.00 region. If we can close above the 155 region basis March a bottom will be confirmed. Our cycle work is mixed but until the trend changes we are reluctant to bottom pick. Key dates this month center around November 17-18 for a cycle low and November 24 and December 1. Our best intuition is that his market will be safer to trade on the short-side but we would suggest that you check with our daily service. Patterns suggest at least a recovery to 196 if can hold here.

Fundamentally, Mexican crop losses from Hurricane Pauline may not have been as great as feared several weeks ago. Moreover, the Brazilian crop, harvested in June and July, could come in as high as 40 million bags. Columbia expects reduced October-December production (4 million bags) due to El Nino dryness.

Central America's coffee-producing association (ACPC) announced an export quota of 8.57 million bags for the 12- month period starting in July. This quota is lower than their previously announced ceiling and reflects a concern about the recent decline in international coffee prices. Nervous financial climates in Brazil and Central America could lead to currency devaluations that would probably add more beans to the export market, thereby lowering world values. Vietnamese coffee production could increase by 10% from 1996/97, which would result in exports of about 5 million bags.

Trading Strategy–Favor swing trades using our daily service. With the major monthly trend lower, we will look for a major place to get short.

Monthly Chart Trend–Lower to 52.00 into November 2001.

Weekly Chart Trend–Higher to 196 into January.

Daily Chart Trend–Bottoming and higher.

Turning Points–Breakout: Buy March 166.60 stop with 161.60 stop. Exit 197.

Breakdown: Sell 139.40 stop with a 144.60 stop. Exit 130.10.

Support/Resistance–Major Entry/Exit Dates: November 24, December 16 and December 22 (high).

FEBRUARY LIVE CATTLE: Cattle have more recently shown some life but we still need a strong close above 7050 to negate new lows to 6685 and 6630. Linear cycles suggest 4-cycle lows into the week of publication around November 17, with an important cycle low also due into December 22. With turkey and ham competition coming up, this market is going to have difficulty rallying. We doubt that February live cattle will get above the key 7050 region before we get a setback. But whether or not we will make new lows to the 6630-6685 region into Christmas is also not as clear as we would like it to be. Expect sloshy trading and congestion between 69.50-67.50 most of the next few months. If we have a chance to rally, it may come in January. Weekly charts and fundamentals would support February cattle getting up to 72.00-73.00 and April getting up to the 74.00-74.50 region. Fundamentals for February cattle have turned more bullish. The late-October snowstorm took a heavy toll. Over 25,00 cattle perished in Kansas alone. Surviving animals suffered 2-3 weeks of weight loss. In addition, lower prices based on large feedlot supplies have stimulated more demand. Moreover, many of the heavy third-quarter placements were yearlings weighing over 800 pounds going in, meaning that these animals will likely be dead before the New Year. Feedlots are expected to see sharp reduction in placements and increased marketings over the next several months.

As supplies tighten, cash value should reach $72 by February and $75 by April.

Trading Strategy–At this point, we will wait for a pullback into December 22 to consider a long April position or long April calls. If you are long February, we would take profits by November 24 if high and look for a downturn in December.

Monthly Chart Trend–Higher.

Weekly Chart Trend–Higher to February 1998 toward 74.50.

Daily Chart Trend–Lower to 6630-6685 into late December.

Support/Resistance–Breakout: Buy 7.50 stop with a 69.36 stop.

Breakdown: Sell 6835 stop with a 6966 stop. Exit 6685.

Turning Points–Major Entry/Exit Dates: November 17, December 8 and December 22.

FEBRUARY LIVE HOGS: Hogs continue to act disappointingly. Rallies have not managed to reach very far and the December contract may have trouble getting through the 6620 region into expiration. Major support for February hogs is 58.65 and 60.30 with major weekly chart support for December at 57.50. We can not declare an end to this bear just yet. We still have 3 linear cycle lows peaking into November 17-20 and we will have to be patient about the long-side, which may not have that much upside potential. Linear cycles and seasonals are on the market's side and we think a rally can take place into about January 21.

The fundamental basis behind the recent basing action in the market has been seasonal trends and higher beef prices. The recent sale of pork to Russia was somewhat supportive. The market has also factored in the potential decline from Asia into the market.

The trade still holds out hope that Japan will step in as a major buyer. Unfortunately, lack of Japanese buying this summer led to artificially high prices and an overbought market. At this point, if Japan ever does buy, will the market pick up value? But this is a big if, given that Japan has continued to confound the trade since May when Taiwanese pork became unavailable due to disease problems. In addition, the decline in the yen versus the dollar reduced Japanese purchasing power.

Japan responded by increasing its own pork supplies and by tapping into its large pork reserves. They now seem content with maintaining smaller reserves, a policy that has been viable due to lower demand for pork. Moreover, other nations have been able to capture more of Japan's frozen pork market by providing desired cuts at competitive prices.

We would continue to accumulate on dips with the February contract projecting 58.65. We would expect at least a rally back toward the 67.20 region basis February or about 66.20 basis December. With higher prices into mid-January, if Japanese buying can come in and the next Hog and Pig report is friendly, we could even recover to the 70.00 region into January 21.

Trading Strategy–Accumulate February hogs and February call options in the 59.00-60.50 region watching the November 17-18 time window for a possible entry.

Monthly Chart Trend–Lower into April 1998.

Weekly Chart Trend–Higher to December 26.

Daily Chart Trend–Consolidating and higher.

Support/Resistance–Breakout: Buy 70.60 stop with a 69.36 stop.

Breakdown: Sell 6835 stop with a 6966 stop. Exit 6685.

Turning Points–Major Entry/Exit Dates: November 17, December 8 and December 22.

November 19, 1997Barry Rosen

Fortucast Market Timing, Inc.

P.O. Box 2066, Fairfield, Iowa

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