May 18, 2004

Recent CBOT Soybean Technical Break Raises Questions For Future

Soybean market participants are looking ahead for signs of whether the recent technical break that took the market to the 50-cent lower trading limit for three of the last four trading sessions at the Chicago Board of Trade will continue. Some argue that the ride is over now that the funds are even, but others say it is just the beginning.

"This isn't about fundamentals anymore. It's been about the funds versus everybody else for the last several days," said Aaron Massey, independent broker at the CBOT.

Since the release of the U.S. Department of Agriculture's May supply and demand report on Wednesday, the commodity funds are said to have sold more than 30,000 contracts, taking the price of soybeans on the Jly contract to as low as $8.82 1/2 a bushel, down from as high as $10.36 1/2 on Wednesday.

In the near term, Chicago traders agree that a "Turnaround Tuesday" will likely result in Tuesday's session with the market steadying, or even bouncing and climbing higher. Following Tuesday's session, though, traders are less in agreement of what could happen.

By Wednesday, the Jly contract will be hanging around the $9.20 to $9.30 area as the market catches its breath, one broker said. To prove its over the slump, it has to close over $9.70, he added, which, considering the recent movements of the market, could be accomplished by Thursday.

Others, though, said things look a little more bearish with the commission houses.

"Maybe the funds are out. But who says they're not going to go short?" a longtime Chicago trader said, adding that the fundamental landscape for soybeans has changed.

The slowing economic climate of China, plans of Chinese crushers to slow soybean imports, the rising value of the dollar, and new South American soybean reserves are all bearish fundamental indicators that have invited the funds to take to the short side. Weak technicals on the weekly charts, and finishing under the 100-day moving average on the Jly chart are also clues there is more room to the downside, another broker said.

The antithesis, a more bullish trader said, is that the funds have made their money after getting out and will return in June when the Nov contract could be top step and be rallying on possible weather threats. "I can't imagine they'd want to go short when they don't know where it's going to," he said.