wmeubank@ocp.kcmo.com
COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(October 29, 1997) SOYBEANS: SHORT TERM–The reasons the stock market selloff is bearish come down to just a couple factors. One, it implies a slowdown in business, especially export business to the Far East, due to currency considerations and the ability, or lack thereof, to pay for needs. Two, there is the potential for margin liquidation. If a large trader is long the indices and is bullish the stock market, he might also be long 2 or 3 hundred contracts of corn or beans. If he gets a margin call, he might liquidate the grains to keep the indices. This is referred to as margin liquidation, not surprisingly, and happens occasionally when a huge bull market sells off. Despite the rally in the stock market, beans were not able to rally. The lower close in Hong Kong continued to weigh on traders' minds. Fears remain that Asian problems are not over. Since Asia has been the engine propelling our markets higher over the past few years, these fears could be well placed. The commitment of traders showed a huge buildup of spec longs in oil. This suggests the potential for a break. If the funds begin to liquidate, downside could be serious. Do not be complacent in these markets. If Asian imports drop, then the record crop that is being harvested may be much more than ample. Demand is still strong at this point, but supplies are increasing as farmers finish up with their harvest and have time to sell. Of additional concern is the increase in planted acreage in Brazil. It was recently announced that their bean production could be 13-15% higher than last year. If El Nino is only a potential problem rather than real, beans could end up in the basement. On the positive side, exports have been excellent, and perhaps there will be no real loss of business. Conversely, if the next reports show a drop in exports, look for a hard break. While I suspect that this market is a buy, I still believe that it is not a buy on strength. We are still seeing sellers on the highs, not buyers.
RESISTANCE–Resistance basis January remains near 698-700, 705, 710, 717, 733.
SUPPORT–Support basis January beans remains near 690-695, 675-680, 665, 648, 652-654.
RECOMMENDATION–Aggressive traders might take advantage of rallies to sell. Sell January beans in the 698-708 area with stops over 715 or of .5-.10¢. Look for a decline to the mid-low 680's, possibly lower. There maybe a number of stops under the 690 area. If aggressive, consider buying January beans near 675-680 with stops under 665 or 648 or of .5-.10¢. Conservative traders should hold out for a decline to the mid-low 650's to buy with .10¢ stops. Option traders could buy January or March calls on dips to the 675-680 area or of more conservative, hold out for the 650's.
M. Steven Morgan
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