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SIEGEL
TECHNICAL MARKET UPDATE
FOCUS ON THE SOYBEAN MARKET: For the most part, the weekly reports on crop progress continue to indicate favorable conditions and the potential for high yields for the 1997/98 season. This feeling was echoed by the latest Pro-Farmer Crop Tour of key Midwestern states that reported healthy plants in Indiana and Illinois, and even greater production possible if Mother Nature cooperates during the remainder of August and through September. The only negative comments was some concern for an early frost, especially with temperatures expected to remain below normal for the next 10 days throughout most of the Midwest. However, since much of the new crop was planted ahead of normal, it was determined that it would take a hard freeze prior to September 20th to do any real damage to the maturing crop. The outside chance of frost notwithstanding, the consensus opinion saw conditions having improved measurably and another bin busting crop on the way.
On the demand side, weekly export inspections were at the high end of trade expectations at 8.774 million bushels. Cumulative inspections are running around 5% higher than last year. For the week ending August 14, export shipments were 877.3 million bushes, versus 835.5 last year. With both crush and export numbers running higher than expectation and just about two reporting weeks left to the current season, it appears the USDA projection of 880 million bushels will easily be exceeded. By the month of October, the U.S. once again will be the only source for soybeans for the world's major consumers. In addition to continued strong demand from as China (which has emerged as a major purchaser of oils and meal), Brazilian crushers are expected to import as much a two million metric tons of soybeans this year, as their supplies have become very tight despite record production. Indeed, the latest USDA data indicates that foreign consumption of soybeans will exceed their production by a historically high 24.02 million metric tons. Accordingly, the bulls should continue to focus on this increasing world demand scenario and tight beginning stocks of only 125 million bushels, as well as current frost scares in an effort to offset the considerable new crop potential that has become a virtual necessity.
In the futures market this week, a sharp 48¾¢/bu. drop suffered by the expiring August contract on late deliveries of 395,000 bushels saw a ironic end to the supply crunch that supported a wild soybean market throughout most of the 1996-97 season. While the September contract is expected to remain at a premium to November, the prospect of an early harvest should keep this spread relatively stable. As the market attempts to discount the substantial new-crop production, the bulls will continue to focus on rising demand prospects as well as the prevailing El Nino condition and its potential effect on oilseed production in China, India and Australia and palm oil yields in southeast Asia. Any sign that world oilseed production could be compromised could light a fire under our domestic prices and help the bulls recover more of their lost ground.
Technically, we view the small congestion range near $6.00/bu. as nearby support and resistance beginning at $6.25/bu. and extending to $6.43. Seasonally, the market has a tendency to push higher from late August to late September, especially in past years when below normal temperatures occurred early in the season. The slow stochastic has turned upward from oversold territory and now enhance the prospect for a nominal rebound. Trend indicators will turn from negative to neutral on a close above $6.25/bu. basis the November contract. We anticipate continued choppy price action with a renewed bullish bias suggesting a rebound to $6.40/bu.
Recommendation–Look to buy near $6.15/bu. Sell Stop–$5.98/bu., close only. Objective–$6.40/bu.
OCTOBER CRUDE OIL: The bulls appear to have run out of steam as signs of increasing world production and stocks, along with peaking gasoline demand, inspired a round of profit taking. We advise temporarily ignoring the seasonal buy window for December crude that will remain open until early October.
Recommendation–Stand aside.
SEPTEMBER COFFEE: Weakening technical signs and indications that world coffee supplies are become more abundant imply that the party may be over for the bulls. A close below the $1.50/lb. double bottom could easily open the floodgates.
Recommendation–We'll now be looking for a rally to purchase out-of-the-money put options.
SEPTEMBER U.S. DOLLAR INDEX: Strong sentiment in favor of the U.S. economy continues to favor the dollar bulls. However, while the Greenback mounted a recovery on the good trade data, we remain technically bearish and see more downside potential ahead.
Recommendation–Look to sell near $100.50. Buy Stop–101, close only. Objective–9700.
DECEMBER WHEAT: Prices continue to derive support from increasing export demand, dry conditions in the southern hemisphere and strength in corn and beans. Apparently few care that wheat sales for 1997/98 are running 14% below a year ago and the harvest is in full swing. We still favor a sideline stance.
Recommendation–Stand aside.
OCTOBER LEAN HOGS: Increasing hog weights, strong marketings and slow packer demand continues to plague the bulls. Futures have now dropped back to the June low near 70¢/lb. and the market is oversold. Nevertheless, we find little reason to go bottom fishing, at least just yet.
Recommendation–Continue to stand aside.
FEBRUARY PORK BELLIES: A neutral Cold Storage report was received warmly by the bulls who clearly have come onto hard times. Talk of a squeeze on the August contract is getting some attention, however, increasing supply prospects are hard to refute.
Recommendation–Look to sell near 74¢/lb. Buy Stop–76.25¢/lb., close only. Objective–68¢/lb.
August 21, 1997 Siegel Trading Company, Inc.
549 Randolph, Chicago, Illinois
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