January 24, 2008

 

CBOT Soy Review on Wednesday: Plunge limit down on speculative selling

 

 

Chicago Board of Trade soybean futures plunged Wednesday, falling to their 50-cent daily trading limits on speculative long liquidation selling.

 

March soybeans ended 50 cents lower at US$11.89 1/2, July soybeans finished 50 cents lower at US$12.20 3/4 and November soybeans ended 50 cents lower at US$11.67 1/2. March soymeal settled US$14.10 lower at US$322.80 per short tonne. March soyoil finished 200 points lower at 49.68 cents per pound.

 

The market is experiencing a significant correction from an unrelenting move to new all-time highs, with the fears of a potential global economic recession chasing equity out of commodities, said John Kleist of Kleist Ag Consulting.

 

The funds shed some length, as recessionary fears associated with falling equity markets and a sharp slide in energy futures attracted speculative sellers to extend the losses, analysts said.

 

The inability of the active March and November contracts to hold underlying technical support at the US$12.00 level uncovered pre-placed sell stop orders to add to the losses as well, traders added.

 

The previous run to contract highs put the market at unsustainable levels, and with investment money flow making the gains largely speculative in nature, the market ran into air pockets beneath prices, and once technical support levels were violated, weaker longs ran for cover, Kleist added.

 

The market ended at limit-down levels, with traders saying the March future was synthetically trading between 2 to 2 1/2 cents lower in the options pit, and the November future was synthetically trading from 7 1/2 to 12 cents lower.

 

The most-active March future's drop to limit-down levels left the contract sitting at the high end of major moving average support levels that range from US$11.86 3/4 down to US$11.76, Kleist said.

 

"Tomorrow may be a bigger test for the market, as a drop below with the contract's key 50-day moving average for first time since August could unleash another wave of speculative selling," Kleist added.

 

However, the late recovery in the U.S. stock market coupled with underlying technical support may provide a buffer to create some price stability, if equity markets can carry that strength into overnight trade, a CBOT broker said.

 

In pit trades, buyers and sellers were scattered among various commission houses, with speculative fund selling estimated at 6,000 lots.

 

 

SOY PRODUCTS

 

Soy product futures ended sharply lower, with soyoil futures backpedaling to its lower daily trading limits. Soyoil futures succumbed to speculative selling, as longs trimmed length in line with soybeans, analysts said. The combination global economic uncertainty, spillover weakness from crude oil and adjustments in the crush spread kept speculative sellers in control of price direction, analysts added.

 

Soymeal futures tumbled with the rest of the soy complex but managed to gain ground on soyoil, as the market served as the balancing leg of the crush spread, a cash-connected CBOT floor broker said. The market tried to keep the crush spread in line, and that enabled soymeal to withstand some of the heavy selling pressure seen throughout the complex, he added.

 

March oil share ended at 43.49% and the March crush ended at 67 1/4 cents.

 

In soymeal trades, buyers and sellers were scattered among various commission houses, with speculative fund selling estimated at 4,000 lots.

 

In soyoil trades, buyers and sellers were scattered among various commission houses, with speculative fund selling estimated at 5,000 lots.