wmeubank@ocp.kcmo.com
THE HIGHTOWER REPORT
141 W. Jackson Blvd, Ste. 1520A, Chicago, Illinois
(October 22, 1997) SOYBEANS:The dramatic run up in the meal market was triggered by aggressive fund buying, slow producer selling early in the harvest season, very strong export sales and the fact that the end user in the U.S. was “uncovered” waiting for harvest break to extend coverage. The recent rally, panic buying by importers and domestic users and increased harvest are all factors which may weigh on the market over the near term. In addition, the recent rally has left the market technically overbought and the recent Commitment of Traders report indicates that speculators were already holding a large net long position. Technically and fundamentally, the market appears overvalued, especially if the weather is close to normal in South America.
The record crops in the U.S. and Brazil will need to be absorbed by the market. The slow producer selling may have helped ignite the recent soybean rally, however, keep in mind that a large percentage of the crop moves into the hands of processors and exporters through delayed-price contracts. While not yet priced by the producer, these soybeans can be crushed and exported around the world. The processor takes control but “needs” to buy the board and hold offsetting long position until the producer calls in to price their soybeans at some later date. As a result, commercials were active buyers into the early harvest and joined in with the other key buyers (domestic end users, importers, speculators). As these delayed price contracts come due, the producer must decide to price soybeans or pay storage charges; likely in mid or late November. Total U.S. usage for soybeans is expected to hit a record high this year, however, the total supply increase is nearly twice the demand increase. In addition, Brazilian soybean production is already projected at a record high and up 12-14% from last year. It will take very adverse weather to offset the huge increase in planted acreage. Once the pipeline is filled, the meal market should struggle to find new buyers. Futures are extremely oversold after hitting contract highs last week.
SUGGESTED TRADING STRATEGY–1) Sell December meal at 233.50 with an objective of 213.00. Risk the trade to 236.60. 2) Buy August/sell January meal at —6.40 August with an objective of +2.40 August. Risk the trade to a close under —8.00 August.
For daily market updates of the Hightower Report of Comprehensive Commodity Research, call 900-225-2200, extension 3 for Grain Market Forecast. The cost per minute is $1.33.
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