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COMMODITY REVIEW AND OUTLOOK
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(December 11, 1997) SOYBEANS: SHORT TERM–Aggressive professional selling turned the 3-cent higher opening call into a five cent lower opening. Exports were moderately positive, with the stocks report neutral. The presence of commercial selling suggests to many traders that the recent rally has encouraged farmers to sell more beans. A problem in the Rio Grande do Sul, Brazil's prime soybean area will be treated as a significant problem if it occurs. However, rain is currently forecast to arrive this weekend, and the rest of Brazil has benign weather. Hot and moist are excellent growing conditions. Still, traders would be advised to keep an eye on South American weather reports. If there are any production problems, demand could push prices quite a bit higher. Some traders believe that recent low prices are finally attracting demand. Certainly, signs of either renewed or dwindling demand from Asia should be treated with respect. Good demand is the only reason we have stayed at these levels, and if it appears to be declining, the downside could be considerable. If meat exports to Asia are down as has been stated recently, it suggests the potential for reductions in grain exports. Don't forget, a huge crop was grown here, and one is being planted in Brazil. In addition, India reported a gain in production of about 30% over last year. We always have bottom fishers, so buying on the lows is to be expected. It's buying on the highs we need to see if this is going to be a bull market. A weather problem or good exports, and more importantly, follow-through after those exports, are needed to get this market on track to the upside.
RESISTANCE–Resistance basis January remains near 705-707, 712-714, 724, 726-728, 733.
SUPPORT–Support basis January beans remains near 700, 690-695, 687, 680, 675, 660, 648-654, 639, 630, 623.
RECOMMENDATION–Most of today's technical damage appeared in the form of the lower rather than higher opening forecast. Just as we have buying on the lows, there is selling on the highs. Unless we can take out the 712-714 resistance area and hold, the prospect of a move to the 680's still appears likely. Taking out 714 implies a test of the mid 720's. Conversely, the 698-700 area has managed to support the market thus far. If 691½, then 687 basis January are taken out, it signals a move that could take the beans to the mid-low 620's. Be careful of reversals if those areas are approached. Also watch for buying near 675 and especially in the 650's to be potentially aggressive. Aggressive short-term traders might sell January beans on rallies to the 707-711 area with stops of 5-10 cents or over 715 or 730, and/or buy a dip to the 700 area with stops under 691 or of 5-10 cents. Longer-term traders should stay short. Option traders should buy puts on rallies.
M. Steven Morgan
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