Grains

MAY AND NOVEMBER SOYBEANS: In the March 11th Crop Production report, the USDA surprised the trade by keeping ending stocks at 140 million, most private estimates had expected 130 million. Brazil's soybean production was increased to 27 million metric tonnes (MMT) from 26.5 MMT. The market managed to make a new weekly chart high before the report, opening a number of possibilities since cycle highs dominate for beans into April 14th. One more new high to 880 or 905 is possible if we get a supportive March 31st report. We are inclined to expect that the USDA will lower carryout in the late March report.

Estimates for crop acreage in the March 31st report range from 64-65 million acres. The higher numbers may come in due to recent high prices. Given ideal growing conditions, we are likely to get a crop of 2.4-2.5 billion bushels, which would push ending stocks back up to the 200-225 mbu region. Historically, this is still at the low end of ending stocks numbers.

The 140 mbu ending stocks number means only a 3-week supply of soybeans in September. But the trade has become more and more accustomed to living with low stocks numbers because a new crop comes to market every six months in either North or South America. Still, Brazil's record 27 MMT crop will pressure the market in the spring when the 14-, 23-, and 26-month cycle lows are due, but we may have to temper our outlook for downside potential even though the removal of Brazilian export taxes will double their export shipments this year. The current pace of U.S. export is so strong that we will easily reach a carryout figure of 100-110 million bushels by summer. Prices must rise to 960 to ration supplies; even higher prices could manifest at the first sign of weather problems. Consequently, shorting this market is recommended only for aggressive traders.

Cyclically, the weakest period for the bean complex centers on April 28-May 14th and possibly continuing into May 22nd. Technical projections for May beans suggest resistance at 880, 891, and 905, with pullbacks likely down to 789 followed by a retest of the 880 region (or slightly higher). Unlike corn, beans have 4 cycle highs dominating into June 1997, but it is too early to estimate if the retest of 880 is due then. The possibility of reaching 960 on the July contract may come into the June cycle high.

Psychologically, until beans get adequate rain, nervous traders will probably keep them in a trading range. Because our weekly chart could allow 960, any weather concerns could inflate this market dramatically.

Our rain cycle work suggest that a drier May will allow early plantings, and we do see rain increasing in June and July. Our only concern is the 9.5-year drought cycle.

November beans hit our upper target of 750, and we are skeptical that we will get above the 760 region into the April 14th cycle high. We would expect at least a setback to 7.05 or 6.95 into the May cycle low. While such a large crop could justify much lower prices to 6.41, we expect that until the crop is made prices will remain in a trading range between 6.95-7.60. Any weather scares during pollination this summer could drive the market up to 8.90. Producers can still consider hedges between the April 14-May 23rd time window, using November 725 or 750 put options or July put options in case the drop is more severe. We may need to add November 725 and 750 call options as insurance against a drought from the late May low. It is still too early to guess the extent of the October cycle low. If you have futures or options hedges, we would recommend lifting them by March 24th.

Trading Strategy Speculators can consider buying a July put option on April 14th to catch the fall into May 23rd and then reversing to September call options.
Monthly Chart Trend Higher to 960.
Weekly Chart Trend Topping into April 14th.
Daily Chart Trend Lower and consolidating into March 24th.
Support/Resistance Breakout: Buy May 911 stop with a 899 stop. Exit 940.
Breakdown: Sell May 774 stop with a 789 stop.
Turning Points Major Entry/Exit Dates: March 24 (low), April 14 (high), May 23 (low).

MAY AND DECEMBER CORN: The USDA left February supply/demand estimates unchanged in its March 11th report. Our own forecast projects cycle lows dominating into April, May, and June, with six cycle lows due the first two weeks after the scheduled March 31st Stocks report.

The strong, unexpected rally in February started from fund buying and was technically related. In this instance corn followed higher on the coattails of beans. The only notable change in the March USDA report was a reduction of 1 MMT for South African corn. Argentina is still expected to produce a record 14.5 MMT crop. Strong Argentine competition in the spring will reduce U.S. exports by 60 million bushels. Also of concern and somewhat bearish is that China continues to muscle in on Asian markets, especially South Korea. Some Far Eastern grain traders estimate that China could export 2-5 million metric tonnes of corn this marketing year compared to about 1 MMT last year.

Estimates of 1997 planting intentions are currently 80-82 million acres; we expect the midpoint at 81 million acres. This would lead to a crop of about 9.49 billion bushels if we have ideal growing conditions. The Sparks Company is on the high side, looking for 81.5 million acres and 9.6 bbu in production.

The USDA is projecting a stocks/usage ratio of 10.9% for 1996/97, which is still historically low. The persistent tightness of stocks underscores the need for a crop of at least 9.2-9.3 billion bushels. Yet the U.S. has not produced such yields two years in a row (in 1996 we produced 9.29 billion bushels).

Our own weather cycle work indicates planting will be on time and perhaps early as rainfall may be a little below normal. Early plantings in conjunction with Argentine export competition will probably pressure prices to their lows in late June. With the onset of the 9.5-year drought cycle in July, the chances of a hot and dry late summer would reduce yields and raise prices. The extent of the damage will depend on how early the crop gets in and pollinates. Therefore, a strong summer rally is possible considering expected tightness of supplies.

We are currently projecting May corn in the 245 region and December corn in the 246 region. We have had producer's hedges in place and will lift them in late spring. We are recommending buying September and December calls as crop insurance into the summer.

In the short term we would be surprised to see May corn move higher after hitting our upper target of 312, with additional resistance at 316 and 320.

Trading Strategy"Speculators can buy July puts, looking for a fall into late spring.
Monthly Chart Trend"Higher into 1998.
Weekly Chart Trend"Lower to 246 basis December into June 1997.
Daily Trend"Topping and lower.
Support/Resistance"Breakout: Buy 316 stop with a 309 stop.
Breakdown: Sell 269 stop with a 282 stop.
Turning Points"Major Entry/Exit Dates: March 24, April 14.

JULY WHEAT: With wheat prices so low, compensation for acres from oil seeds in Minnesota and the Dakotas is going to be fierce"and ultimately wheat prices benefit. Cycles on the downside suggest bottoming action by March 24th, with higher prices into April 14th and continuing into early June when hedging pressure may hit the market. Short term, upside prices may be limited to 385-387 on July wheat, with downside price action expected between 350-352. Currently, prices are weak because the amount of soft red wheat exported out of the CBOT represents only 1% of total exports since February 1. Still, the USDA is expecting a total of 145 million bushels to be exported. To meet this projection, 1.25 million bushels will need to be exported weekly. This figure likely will not be met, implying that carryout will rise by 57 million bushels. However, Minneapolis and Kansas City wheat may meet their export targets. A spread buying Minneapolis and selling Chicago wheat would exploit the relative strength/weakness of export demand at these respective markets.

Looking to the spring acreage report, analysts are expecting 72 million planted acres. However, recent rises in oil seed prices will probably reduce spring wheat plantings by 10-15%, which would be supportive in the long term. Increased world production would offset some of this decline, as the IGC is projecting world wheat production to rise to 585 MMT.

As soybean prices continue to escalate, cheaper wheat will be in demand and prices will rise. The weekly chart would allow prices to increase to 435 on the December contract, but we do not have supportive fundamentals to justify those prices at this time. Buying December wheat in the 362-366 region in the March 24th time window, and looking for a move to at least 4.00 into the early June high might work here. We will provide firmer long-term projections in the next issue.

Trading Strategy"Buy December wheat on pullbacks into March 24th, looking for higher prices into April 14th and possibly 437 into June.
Monthly Chart Trend"Higher toward 437.
Weekly Chart Trend"Consolidating between 350-387.
Daily Chart Trend"Lower into March 24th.
Support/Resistance"Breakout: Buy 379 with a 369 stop.
Breakdown: Sell 346 with a 355 stop.
Turning Points"Major Entry/Exit Dates: March 24, April 15.

Fiber And Food

JULY COTTON: The March 11th USDA report raised exports 300,000 bales to 6.8 million bales. Mill use was unchanged, and ending stocks were lowered to 4.15 million bales. Still, the trade sold the report off. Cotton is likely to remain a fairly boring market in tight ranges between 72.65-79.40. We do see it breakout out later into July. However, December cotton has a chance of reaching the 82.00-84.00 region

Fundamentally, exports have improved as ample U.S. cotton supplements low foreign stocks. Exports could even rally to 6.5-7.0 million bales this year at the current pace. Still, U.S. cotton must compete with Syria and Africa, but until their surplus is sold, U.S. cotton is unlikely to stage a major rally.

Spring plantings suggest reductions of cotton acres in favor of beans and corn. A loss of 1 million acres would reduce ending stocks to 3.5 million bales. Moreover, because we are in a wild weather-cycle year, unexpected weather patterns could boost prices in the spring.

Cyclically, a meltdown cycle for the CRB into March 24th would pressure cotton prices. But due to offsetting factors such as supportive linear cycles, price trends are not clear. We still have a 44% chance of seeing 73.90 or even 72.65 on the July contract which would offer a good position trading opportunity.

Trading Strategy"Buy July and October calls on pullbacks toward 73.90 basis July.
Monthly Chart Trend"Higher into 1998.
Weekly Chart Trend"Higher into September 1997.
Daily Chart Trend"Consolidating between 72.65-78.00.
Support/Resistance"Breakout: Buy 79.00 stop with a 71.80 stop.
Breakdown: Sell 72.05 stop with a 73.90 stop.
Turning Points"Major Entry/Exit Dates: March 24, April 2, April 14.

MAY SUGAR: Sugar has held up much better than we expected, and with weekly stochastics pointing higher, how can we be bearish? Fundamentally, sugar has held up on concerns about tighter Brazilian and Cuban supplies as well as a new interest in Chinese buying.

The bigger picture still looks bearish with global production set to outpace usage by about 2-3 million tonnes. Sugar stocks, when measured as a percentage of demand, are at very high levels, and in equivalent years in the 1980's, sugar prices were substantially lower. The key fundamental note is that India has 10 million tonnes in surplus, and it will probably not export much this year, especially since the rest of the world tends to dislike the quality of Indian sugar. Other parts of the world have also been troubled the Thai crop is disappointing. Brazil is not likely to export much, and Cuban production will probably be low.

The cyclical outlook suggests higher prices into March 19, followed by a quick meltdown to March 27 and April 14. The May contract is likely to test the 11.50 region and then remain in a trading range between 10.00-11.50. Although weekly charts continue to suggest 7.70, we have no major cyclical weakness until the July-December 1997 time window.

We do not see an exciting trade here and suggest looking elsewhere.

Trading Strategy"Stand aside and trade elsewhere.
Weekly Chart Trend"Higher into July 1997.
Daily Chart Trend"Higher to 11.50.
Support/Resistance"Breakout: Buy 11.70 stop with a 11.20 stop.
Breakdown: Sell 10.39 stop with a 10.79 stop.
Turning Points"Major Entry/Exit Dates"March 19, April 14, May 15.

MAY COCOA: Cocoa slid a bit further and longer than we anticipated last month but probably has bottomed on the weekly chart. We need to rally in 5 waves up to be more certain, but the rally on March 10th provided a degree of confirmation. With CRB cycles turning ugly into March 24th and March 31st, we would be surprised to see the market sustain a huge rally after March 19.

News that the Ivory Coast may cut back production has led to the recent rally and lead to concerns that the market could rally to 1.500 sterling per metric ton. The Iranian commodities minister, speaking in London, forecasted that 1996/97 production could be around 950,000 MT, compared to 1.2 million last season. He also noted that his government plans to destroy illegally planted cocoa trees.

Fundamentally, E.D.F. Mann and ICCO have increased the size of the cocoa deficit to about 170,000-230,000 tonnes, up from prior estimates of 130,000-160,000 tonnes. Weather problems in Brazil could lead to the smallest crop since 1968-69. Mann noted that world grindings are up 5.7% in the 1995-96 year.

Fundamentals warrant at least 15.25 short term, but concerns that an international trade house may tender an extremely large tonnage against London March futures may prevent a major rally from being sustained. Seasonally, cocoa tends to rally during the spring. Once the weak CRB cycles are completed, we expect cocoa will gradually inch up.

Position traders can consider July call options on breaks, but as usual, there is not a lot of exciting activity here. Cycles are very mixed in late March, with weakness likely into March 25 and a sudden recovery into April 2 and probable weakness from March 12-25.

Trading Strategy"Consult daily service for futures recommendation or consider July call options on breaks.
Monthly Chart Trend"Up to 15.25.
Weekly Chart Trend"Bottoming and higher into May.
Daily Chart Trend"Higher.
Support/Resistance"Breakout: Buy 14.10 stop with a 13.80 stop.
Breakdown: Sell 12.88 stop with a 13.43 stop.
Turning Points"Major Entry/Exit Dates: January 29-February 3rd,
February 15th, February 24th (high), May 9th (high).

MAY COFFEE: May coffee is moving much too quickly to call near-term action. Last month's target for the May time framework has already been taken out. Current projections suggest the 235.25-240.00 region for the top of the third wave and then a large consolidation between 156.70-235 until we make a slightly higher high into late May, when the 17-, 22-, and 25-month cycle highs are due. We are reaching a point where the best part of the move may be over, and we will get a series of consolidations and higher highs with a large amount of consolidation occurring over the March and April time window. We see general weakness into March 25 with continued consolidation, and swings into April 2, April 7, April 21, and April 28.

Fundamentally, the Brazilian coffee exporters are projecting 1997/98 output at 23.3 million bags. Brazil's concern over their coffee deficit is demonstrated by their move to use coffee auctions to ration supplies. El Salvador is having trouble with production, and given current tightness in Brazil, problems in this or other regions will greatly magnify supply impacts on prices. Contributing to tight supplies is the possibility that other Central American countries may have sold their coffee, and Columbia may have less output than USDA's estimate of 12.5 million bags.

Our long-term cyclical work is now indicating higher prices for all of 1997, with the exception of April and June. A corrective fall is most likely March 11-25, with a secondary low into April 4.

Trading Strategy"Favor bear spreads during weakness March 10-25 and consult daily service. Consider long-term December call options on weakness.
Monthly Chart Trend"Higher into 1998.
Weekly Chart Trend"Higher to 262.
Daily Chart Trend"Consolidating between 210 and 155.
Support/Resistance"Breakout: Buy 265 stop with a 255 stop.
Breakdown: Sell 139.95 stop with a 144 stop.
Turning Points"Major Entry/Exit Dates: March 10-11, March 25, April 23.

Meats

APRIL LIVE CATTLE: Cattle have hit our minimum upside target, and with rising feed prices, have been slowly sinking as we go to press with this issue. Although a chance exists of reaching a new high to 70.95, the market will probably put in a double top in the 70.00 region by March 19th and then fall. A break through the 67.00 level would seal cattle's fate and preclude higher prices. Cycles turn weak March 19-April 2nd and appear to be heading lower into the first week of May.

Fundamentally, the market has had too much to absorb after an $8.00 surge in boxed beef prices and a $6.00 rise in cash cattle. Retailers started pulling out and lighter-than-expected cattle slaughters are indicative of fat cattle building. Slaughter numbers have been coming in on the light side, indicating a decrease in cow slaughter earlier than the industry had expected. Low numbers are likely to be supportive through the rest of March and April as placement figures from last December were 12% below the year before.

The market has been roaring since last month's Cattle on Feed report. A close look at the numbers shows that while overall placements for January were 125%, we see the 700-799 pound category at 103%, with total placements under 700 pounds were at 131% suggesting that the bulk of heavy placements were calves that will not become finished cattle until the June-August period. Meanwhile, supplies still look tight from mid-March to mid-May, and the industry continues to feel positive toward a strong trend in demand for late winter into early spring. Supermarkets have been featuring beef in contrast to pork as demand for boxed beef has been exceptional.

The long June/short August spread may be the best play the rest of March. We think April will start coming off as funds roll into the June contract. We would take profits on longs by March 19. Producers should consider hedging some August contracts. Fundamentals suggest the heaviest supply is due between June and August. Our forecast of a $10-12 drop in futures could suggest August cattle will hit the $61-63 region.

Trading Strategy"Cover April longs by March 19. Consider August $65 put options and August futures for hedging purposes.
Weekly Chart Trend"Up to 79.10 into 1998.
Daily Chart Trend"Consolidating and topping toward 70.95. Support/Resistance"Breakout: Buy April 70.75 stop with a 68.95 stop. Exit March 19.
Breakdown: Sell April 66.75 stop with a 67.75 stop.
Turning Points"Major Entry/Exit Dates: March 19, April 2.

APRIL LIVE HOGS: The dramatic collapse of hogs during the week of March 3rd was spurred by a number of factors. Retailers have not switched to pork as it has come down in price. Large numbers of heavy weights were pressuring the market at a time when several packing plants were shutting down. Moreover, Japan announced that it would maintain its tariffs on pork imports until June. Japanese imports had held the greatest potential for the pork complex until this announcement, demand from Japan usually helps lift prices in May and June.

Hogs are likely to be under pressure until the Hog and Pig report on March 27th. Major support is at the 67.10 and then the 65.00 region, but it's difficult to determine exactly where declines will stop. Cycles are mixed into March 17-19 but then turn decidedly weaker into late March when the Hog and Pig report is due. Fundamentally, retailers have kept prices much too high to spark demand; when prices do fall, they may fail to promote pork consumption. On the bright side, while we tend to increase numbers seasonally during the March/April time frame, this increase should be much smaller than in previous years.

Short term, cycles suggest weakness from March 10-31 followed by a recovery to April 19 and a possible pullback into the second week of May. June hogs have an upward potential of $86.00, but our upward target will depend on Japanese demand.

Trading Strategy"Buy June calls and futures on pullbacks in the late March time period.
Monthly Chart Trend"Up to 95.00 into 1998.
Weekly Chart Trend"Up to 86.00 basis June into the spring.
Daily Chart Trend"Lower into late March.
Support/Resistance"Breakout: Buy 77.70 stop with a 76.70 stop.
Breakdown: Sell 67.95 stop with a 69.96 stop.
Turning Points"Major Entry/Exit Dates: March 19, March 27, April 19.

MAY PORK BELLY NOTES: Bellies melted with the hogs in early March, and the weekly continuation chart suggests bellies at 71.40 to complete downside patterns. Only a 23% chance exists of rising to 109.14 into the June cycle high, when the 10-, 14-, 44-month cycle highs are due.

We expect downward consolidation into the March 27th Hog and Pig report, with some consolidation into the April 11th time window. The consolidation range should be between 74.40-78.40 on the May contract.

We do not see a long-term position trade setting up here except for the possibility of buying July call options. Current fundamentals suggest that beef/bacon burgers will not be in great demand this summer as McDonalds is aggressively cutting its basic burger to 55 cents, which will lead to no-frills competition.

Watch March 17, March 27, and April 14 for new swing dates of significance.
Major Dates"March 19, March 27, April 19.

March 13, 1997 Barry Rosen
Fortucast Market Timing, Inc.
P.O. Box 2066, Fairfield, Iowa

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