July 26, 2006

CBOT Soy Outlook on Wednesday: Up 1-2 cents, weather concerns to underpin

Traders at the Chicago Board of Trade anticipate a slightly firmer start for soybean futures, as higher overnight prices and lingering concerns over August weather serve as underpinning forces.

Soybeans are called to open 1 to 2 cents higher.

In e-CBOT trade, November soybeans were 1/2-cent higher at US$6.07 1/2 per bushel.

The market is poised to begin a touch higher, with hot temperatures moving into the Midwest as soybean crops hit their key growth stage, providing a spark for traders to add some premium to prices, analysts said.

Hot, dry conditions in the western Midwest are providing uncertainty over yield potential, keeping traders cautious of pressing the market, despite ample nearby supplies, said a CBOT commission house broker. Analysts say traders will be keeping their eyes on the sky for rain events, as forecasted heat across the Midwest will need fresh rains to replenish soil moisture.

Nevertheless, with favorable conditions in the eastern Midwest, upside potential may remain limited, with hedge related pressure associated with an abundance of old crop supplies that still need to be marketed, expected to cap upside movement, traders add.

Meanwhile, market technicians said recent price action has formed a bullish island bottom reversal pattern on the daily bar chart, suggesting a near-term low is in place. However, downside momentum still has a technical advantage, with the next downside price objective is closing prices below solid support at last week's low of US$5.95 1/2 basis the November contract. A close above solid technical resistance at Tuesday's high of US$6.14 1/2 would provide some fresh upside technical momentum.

First resistance for November soybeans is seen at US$6.10 and then at US$6.14 1/2. First support is seen at US$6.03 3/4 - Tuesday's low - and then at US$6.00.

The DTN Meteorlogix Weather Service forecast said another surge of fairly hot weather appears likely for the western Midwest. Dryness is now the most important issue for filling crops. The next chance for scattered showers does not come until sometime late in the ten-day period and this is somewhat uncertain.

In the eastern Midwest, there is no significant threat to crops in the eastern and southern locations of the region. The west-central areas are still quite dry, but showers are possible in those areas Wednesday, and then the activity is mainly south and east of that area, Meteorlogix forecasts.

U.S. Midwest cash soybean basis bids are mostly unchanged Wednesday, cash dealers said. Spot cash soybean bids were up 2-cents in Sioux City, Iowa, down 3-cents in Peoria, Ill., and up 2-cents in St. Louis, Mo., according to cash sources Wednesday.

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

In overseas markets, soybean futures traded on China's Dalian Commodity Exchange settled lower on sluggish demand Wednesday, analysts said. The benchmark September contract settled RMB13 lower at RMB2,428 a metric tonne, after trading between RMB2,420/tonne and RMB2,440/tonne.

Crude palm oil futures on the Bursa Malaysia Derivatives ended lower Wednesday, tracking declines in other commodity markets, including crude oil. The benchmark October contract ended at MYR1,565 a metric tonne, down MYR11 from Tuesday.