July 18, 2007

 

CBOT Soy Review on Tuesday: Plunges again on speculative liquidation, weather

 

 

Soybean futures on the Chicago Board of Trade posted sizable declines for the second consecutive day Tuesday and extended their retreat from previous gains on speculative liquidation amid favorable near term weather outlooks.

 

August soybeans settled 38 cents lower at US$8.33 3/4, and November soybeans finished 38 1/4 cents lower at US$8.60 1/2. August soymeal settled US$13.50 lower at US$222.20 per short tonne. August soyoil ended 31 points lower at 36.92 cents a pound.

 

The combination of improved near term Midwest weather conditions, a lack of underlying cash support, and technical weakness joined forces to loosen bullish traders' grip on the market, said Chad Henderson, analyst with Prime Agricultural Consultants in Brookfield, Wisconsin.

 

The liquidation of previously purchased contracts was the order of the day, as the market was said to have gotten way ahead of itself and was in need of a correction, traders said. Technical selling was a featured attraction, with declines accelerating once the most active November future penetrated a chart gap left on technical charts since June 29, floor traders added.

 

Meanwhile, margin liquidation was featured as well, as weaker longs were forced to trim length after CBOT raised margins on soybeans effective Wednesday, Henderson added.

 

Active contracts lost more than 4% of their value during the session, as futures realigned prices according to the fundamental makeup of the market and less threatening nearby weather. The most active November future dropped 88 1/4 cents in its last two trading days.

 

Weather remains the key driver of prices, and with rain clouds seen across Midwest weather maps, the market found it tough to push prices after rallying to new contract highs last week on hot, dry forecasts, Henderson added.

 

The western Midwest has potential for a little more rain in midday forecasts than were projected in morning forecasts, said Joel Burgio, meteorologist with Meteorlogix Weather Services. The western Midwest will see episodes of scattered showers Wednesday and Thursday with amounts ranging from 0.25 to 1 inch, favoring eastern and southern Iowa, and northern Missouri.

 

Episodes of scattered showers from 0.3 to 1.5 inches in total are on tap for the eastern Midwest through Thursday, Burgio said. Temperatures will stay cooler through Saturday across the crop belt, with the possibility for a few thunderstorms in western Iowa, both are changes from morning outlooks, said Burgio.

 

CBOT is raising its margin requirements for soybeans, the exchange said in a press release Monday. Initial margins on soybean futures were raised from US$1,823 to US$2,430 per contract. The changes are effective at the close of business Tuesday.

 

In pit trades, Fortis and Iowa Grain each bought 1,000 November, Fimat and UBS Securities each bought 500 August, and Rand Financial bought 500 November. Fimat sold 2,000 November, Man Financial sold 1,000 November, and Fortis and RJ O'Brien each sold 500 November. Speculative fund selling was estimated between 9,000 and 10,000 lots.

 

 

SOY PRODUCTS

 

Soy product futures ended lower across the board, backpedaling in unison with the heavy losses experienced in soybeans. Soymeal futures were the downside leader of the products once again, closely mirroring the declines in soybeans, with improved near term weather for soybean crops taking away some of the risks of tight soybean supplies for crushing plants in the next marketing year, analysts said. Technically inspired selling was featured as well, with losses accelerating once pre placed sell orders were triggered after active contracts penetrated underlying support at a chart gap from June 29 and at major moving averages, analysts added.

 

Soyoil futures declined in step with the rest of the soycomplex. However, the market managed to limit declines on soymeal/soyoil spread unwinding, underlying technical support and bullish world vegoils outlooks amid strength in crude oil futures, analysts said.

 

August oil share ended at 45.38% and the August crush ended at 61 1/4 cents.

 

In soymeal trades, Bunge Chicago bought 500 December and Fimat bought 600 May. Bunge Chicago sold 500 December, Tenco sold 500 August, Fimat sold 300 December, and Man Financial sold 800 December. Speculative fund selling was estimated between 3,000 and 4,000 lots.

 

In soyoil trades, buyers and sellers were scattered among various commission houses.