July 25, 2006

CBOT Soy Outlook on Tuesday: Up 4-6 cents, crop ratings, weather, technicals

Soybean futures on the Chicago Board of Trade are seen starting Tuesday's open auction session on firm footing, buoyed by crop ratings declines, Warm, dry weather forecasts and technical activity.

Soybeans are called to open 4 to 6 cents higher.

In e-CBOT trade, November soybeans were 6 cents higher at US$6.10 3/4 per bushel.

The market is expected to follow the overnight theme, adding back some risk premium to prices, as a larger-than-expected decline in crop ratings, above-normal temperatures expected in 6-10 day outlooks and technical incentives attract speculative buying, analysts said.

Strength in outside markets are expected lend support to higher prices, with weather remaining the dominant feature, as traders factor in yield threats as dryness remains a concern for western Midwest crops.

Technical analysts said the combination of Monday's gap higher move on the daily bar chart and close nearer the session high, along with Friday's gap-lower trade, formed a bullish island bottom reversal pattern on the daily bar chart, suggesting a near-term low is in place. However, downside momentum is still solid, with the next downside price objective for November soybeans is closing prices below solid support at last Friday's low of US$5.95 1/2. It will take a close above technical resistance at US$6.20 to revive upside momentum.

First resistance for November soybeans is seen at US$6.06 1/2 - Monday's high - and then at US$6.10. First support is seen at US$6.01 3/4 - Monday's low - and then at US$6.00.

Meanwhile, soybean crop ratings dropped 3 percentage points in the good-to-excellent category. The U.S. Department of Agriculture reported that 54% of the U.S. soybean crop was in good-to-excellent shape as of July 23. Minnesota crops rated in good to excellent improved by 1 percentage point in their top rated category, Illinois soybeans increased 5 percentage points to 64% good to excellent, and the Indiana crops increased 3 percentage points at 64% in the same category. Ohio crop conditions dropped 1 percentage point to 61%, and Iowa soybeans fell 6 percentage points to 61% in good-to-excellent condition.

Seventy six percent of soybeans are blooming, the USDA reported, up 16 percentage points from the week prior. Thirty two percent of the U.S. soybean crop is setting pods, up 16 percentage points from last week and eight percentage points ahead of the five-year average, according to the report.

The DTN Meteorlogix Weather Service forecast said Tuesday's U.S. and European models are in fair to good agreement during the next 5 days and fair agreement during days 6-10. The U.S. model has a stronger ridge centered over the eastern U.S. during the 6-10 day period while the European model also features ridging but not as strong or as far east. In either case, this is an above normal temperature pattern and below normal rainfall pattern for most of the U.S., Meteorlogix said.

In the case of the U.S. model this would be hotter for more of the Midwest region but it may also allow for better rain chances in the northwest Midwest and northern plains with Gulf moisture allowed to come northward on the western side of the ridge center, Meteorlogix added.

U.S. Midwest cash soybean basis bids are mostly unchanged Tuesday, cash dealers said. Spot cash soybean bids were up 2 1/2-cent in Peoria, Ill., and up 1-cent in St. Louis, Mo., according to cash sources Tuesday.

Rotterdam soybeans and soymeal prices were higher. European vegoils were mixed.

In overseas markets, soybean futures traded on China's Dalian Commodity Exchange settled higher Tuesday, following overnight gains on the Chicago Board of Trade and stronger metal futures on the Shanghai Futures Exchange. The benchmark September contract settled RMB4 higher at RMB2,441 a metric tonne, after trading between RMB2,433/tonne and RMB2,454/tonne.

Crude palm oil futures on the Bursa Malaysia Derivatives ended higher Tuesday, boosted by friendly export data and a resurgent crude oil market. The benchmark October CPO contract ended at MYR1,576 a metric tonne, up MYR11 from Monday.