January 24, 2007

 

CBOT Soy Outlook on Wednesday: Down 6-8 cents to correct bush speech run up

 

 

Chicago Board of Trade soybean futures are expected to start Wednesday's day session weaker on lower overnight trade and with the market overdone after strong gains Tuesday ahead of the State of the Union address, sources said.

 

Soybean futures are called to open 6 to 8 cents lower per bushel.

 

In e-cbot overnight trading, March soybeans dropped 8 cents to US$7.19 1/4.

 

CBOT March soybean futures Tuesday ended at a fresh contract high on bullish expectations that President George W. Bush would promote alternative fuels when he addressed the nation Tuesday night. Those expectations were met, and the market will now likely see a "buy the rumor, sell the fact" kind of trade, sources said.

 

Interest in alternative fuels affects soybeans because soyoil can be used to produce biodiesel, a processed fuel that can replace petroleum-based diesel fuel. Corn-based ethanol is another alternative fuel.

 

"We had a sharp run-up yesterday before the speech, and now we're giving back some of those gains," a CBOT floor source said. "It was all overdone. We couldn't go any higher."

 

Still, soybean bulls remain in firm technical control and are looking for more on the upside in the near term, a technical analyst noted. Soybeans, however, will also likely stay a follower of corn for the near term, he added.

 

The next upside price objective for the soybean bulls is to close prices above solid longer-term resistance at the 2005 high of US$7.52 1/4, basis nearby futures. The next downside price objective for the bears is closing prices below solid support at US$7.00.

 

First resistance for January soybeans is seen at the contract high of US$7.28 1/2 and then at US$7.35. First support is seen at Tuesday's low of US$7.21 1/2 and then at US$7.15.

 

Aside from the president's speech, there was little news out overnight, traders said.

 

Looking at the weather, the DTN Meteorlogix weather firm continued to report there are concerns that persistent wetness in some Brazilian soybean areas could lead to increased soybean rust issues. Otherwise, however, growing conditions are "mainly favorable," the firm noted.

 

In overseas markets, China's soybean futures traded on the Dalian Commodity Exchange settled mostly higher Wednesday on gains at the CBOT, but closed lower on sluggish soymeal demand.

 

Crude palm oil futures on the Bursa Malaysia Derivatives, meanwhile, ended sharply lower Wednesday as the benchmark contract broke a key technical support level, paving the way for more weakness ahead. Traders attributed the weakness to talk of poor exports in January.

 

In other news, India's oilseeds output is forecast to decline by anywhere between 2.0 million and 2.5 million metric tonnes in the current marketing year to September 2007 from 23.97 million tonnes a year earlier, according to the president of the lobby group of local edible oils traders and manufacturers. The decline in output is mainly due to a fall in acreage, he added.