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DEAN WITTER
FUTURES COMMENTARY
Prepared by Dean Witter, Inc.
Base Metals
COPPER: Early short covering appeared to be technically based as light fund support emerged. The recovery is likely to be short lived as fears of an interest rate hike and weakening demand impacts values. We still see the rebuilding of exchange stocks along with the lack of borrowing interest as negative and look for values to make a renewed test of the downside which could carry values down to the 88-cent level basis December over the intermediate term and toward the 1950 area on three months.
Energies
Prices continued to trade in a rather choppy fashion. Early selling developed in response to news Turkey had withdrawn troops from Northern Iraq. However the breakdown was short lived as scattered support developed in reaction to statements from the Iraqi foreign minister who indicated that delays in approving aid contracts might jeopardize a 3rd oil-for-aid deal in December. Although this news touched off short covering, the market lacked follow through as traders remained cautious.
We still look for overhead selling to emerge. The weakness in the switches still appears to reflect more adequate availability as refiner buying interest pulls back. In addition, we suspect that the recent rally has been accompanied by a rebuilding in secondary inventories of products. The lack of demand should help moderate concern over inventory levels. This has the potential to be a source of weakness and provide resistance near 22.50 basis the nearby and potential to 21.30.
In products, we continue to look for good overhead selling. Heating oil use is likely to remain weak particularly if the prospect for above normal temperatures in El Nino years holds true. In heating oil, we would look for values to test the 57.00-cent area basis November. In unleaded gasoline weak cash markets holds out the potential for values to retrace toward the 58.50 level basis November.
Natural gas prices traded in a rather steady fashion with early selling linked to the large AGA stock increase encountering support. With temperatures remaining rather moderate usage levels appear weak which should lead to further builds in stock levels. We would look for values to encounter resistance near the 296 level and suspect that values will eventually test the 2.65 level.
Softs
COTTON: Prices failed to follow through on early strength linked to the export sales report which showed net sales of 280.1 tb net and shipments of 73.1 tb. Instead light selling developed in advance of the USDA report with the market still looking for an increase in the U.S. crop. On average the Crop report is expected to show a production level of 18.23 mb slightly below the 18.42 mb estimated last month. However some estimates appear as high as 18.6 million bales.
SUGAR: The market opened and traded higher most of the session before setting on a firm note. Light speculative support helped to push values to test the 12.00 resistance level basis March in response to reports of supply shortage at several Indian sugar mills. The talk is that total sugar cane production will be reduced for 1997/98 as well as delay in exports due to the inability of processors to secure supplies. Overall we still see the prospect for prices to remain firm, but will likely encounter difficulty regaining the 12.00 level due lack of fresh fundamental news.
COCOA: The market traded in a choppy fashion most of the session before settling lower on the day. The failure to maintain the 1700 basis December prompted a mid-session sell-off which took prices back toward the 1680 level by the close. Contributing to the weaker tone were reports of rainfall in the Ivory Coast as well as news that the European Parliament will be voting on whether to allow 5% non-cocoa butter vegetable fats to be used in the production of chocolate. If parliament votes for the cocoa butter fat, cocoa bean and products imports into Europe could be cut dramatically. However the overall outlook for prices remains positive due to sizable cuts in Indonesian production as well as the prospect for a sizable world deficit.
COFFEE: Talk that damage from Hurricane Pauline was not substantial helped encourage good selling interest. The weakness might persist as harvest pressure picks up and light selling develops ahead of the GCA report on October 15.
FROZEN CONCENTRATED ORANGE JUICE: With the USDA crop estimate approaching tomorrow, light liquidation continued to develop. The prospects for a large crop over 250 mb holds out the potential for values to decline sharply in response to a bearish report. However we see a bearish report for the most part discounted and likely leading to a buying opportunity.
Grains
Strong weekly export sales and fund buying for the fifth day in a row helped push grain and oilseed prices higher again on Thurs. Despite some overnight profit-taking on limited export news and Brazil approving GMO bean imports from the U.S. which had been expected, today's impressive weekly export sales in the soy complex and in wheat prompted these pits to open higher. Corn was unable to overcome its slightly disappointing 481,400 export pace opening fractionally lower, but all the markets were a bit sluggish the balance of the morning as further evening up ahead of Friday's 7:30 AM USDA reports occurred.
WHEAT: This pit stayed the most positive after the opening when the EU'S grain committee announced another conservative weekly sale of only 195,000 stocks at 7.73 ECU which helped this grain to remain higher the rest of the morning. No big adjustments in the USDA supply and demands except for 20 million increase in U.S. production from 9/30 small grain reports and a possible increase in 97/98 feed demand because of lower than expected September stocks left this pit treading water mid day, but some talk about higher world production because of larger former Soviet Union, Canada, and possibly Australian crops.
Rosenthal buying kept this pit firm into the close when stops above 370 were activated prompting more NY fund buying to occur, but some late profit-taking and light commercial selling slipped values on the bell. We remain optimistic that December can return to its recent highs of 395, but we're a bit cautious that this pit may be ripe for setback after's push to decent resistance at 370-75.
SOY COMPLEX: Today's 5th highest weekly meal sales of 505,800 tonnes, 2nd highest weekly bean oil pace of 88,200 and a strong 870,400 tonne (32 million) in bean exports also helped the complex to rebound back to near unchanged by late morning. Less than expected overnight confirmations of only 2 cargos of beans and 100,000 U.S. meal for May-June shipment versus recent larger Chinese washouts rumors may have also prevented some selling, but renewed fund buying was main factor for the complex's recovery. Reports about logistical problems with Ukrainian sunseed shipments and some early commercial support also supported bean oil today, but a weaker overnight palm oil market and strong U.S. crush this fall left this pit a bit tentative today.
Bullish commercial option action and fund buying helped rally meal to new highs and strength the complex to a firm close. 28.5-29.5 NOPA rumors and fund buying were behind beans late push, but moderate commercial selling also occurred, late.
USDA October Production report will be watched closely Friday, but this pit likely needs some crush and export demand increases to keep beans extremely bullish after the past week's big rally. Post-harvest potential 695-710 continues, but November probably needs a quick push through its nearby 685-88 resistance or a setback to 650-660 range could still occur. Watch out for head fakes in either direction.
CORN: This pit stayed the most defensive today with rumors that China may already be re-offering export supplies at $10/ton higher price and evening up ahead of the Friday's reports, but fund buying and wheat's late rally helped this pit close higher. This market has best chance for lower ending stocks because higher feed demand levels, but with 70% of the harvest still ahead and recent big rally, a 5-15 cent setback may occur before push to 295-300. China production estimate may be the key. Any drop keeps CZ hot.
October 9, 1997Dean Witter, Inc.
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