wmeubank@ocp.kcmo.com
COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(October 16, 1997) SOYBEANS: SHORT TERM–Talk that the Chinese canceled purchases of beans is adding to the pressure in the bean market. Profit-taking and increased farmer selling are also weighing on the bean market after last week's rally. Concerns remain that weather will be a problem in Brazil. Rain in the Rio Grande do Sul and Parana, the primary soybean areas in Brazil could interfere with the planting season, and provide still more support to the beans. The thundering herd has El Nino fever, so expect buying to occasionally be very aggressive. The Grain report showed a production figure of 2.722, quite a bit lower than the expected 2.77 or so. While this was a bullish surprise, it's also important to realize that the numbers represent a huge crop. Caution is advised regarding buying strength at this time. Harvest is still an issue, and exports may decline as a result of last week's move. The potential for a hard break remains.
LONG TERM–Longer term, I remain bullish on the bean complex. I am bullish on meal as world livestock production has increased, especially in Asia, and demand should remain strong. Oil should remain strong due to production problems in Southeast Asia. Demand is also very strong for oil. El Nino may exacerbate any problems, and add to the bullish tone.
RESISTANCE–Resistance remains near 710-714, 720, 735, 750, 775- 780.
SUPPORT–Support basis November beans remains near 695- 700, 675, 652-655, 642-644, 636.
RECOMMENDATION–Conservative bulls should put on January or March vertical call spreads. Consider buying 700 or 725 calls, and selling 750 or 775 calls. If you do not know what I mean or need help in determining the best way to do these, call me. Aggressive short-term traders might consider selling November beans in the 705-715 area with stops over 730. Look for support to develop in the upper 690's, and if aggressive, consider buying there using tight stops of 5-8 cents. Otherwise either take profits with the intent of re-entering positions later, or stay short for a break that could send the beans to the 675-685 area. I would also contemplate buying December oil on pullbacks to near 2400 with 50-100 point stops, and December meal on pullbacks to the 218 area if aggressive, the 212 area if more conservative. Use 3-5 dollar stops. Objective open. Beans have tacked on quite a premium in the face of this report, so conservative futures traders should stay on the sidelines waiting for a good break. Aggressive option traders might look at selling 700 or 725 November or January beans calls at from current levels. Risk about 5 or so cents. Bullish option traders might use calendar spreads, buying March or May, and selling January or November calls. The volatility has contributed to excessive option premiums, so option buyers may wish to remain patient.
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