April 29, 2006
CBOT Soy Review on Friday: Soyoil sell-off shaves soybean gains
Soy complex futures on Friday put in a volatile day of trading where gap-higher openings were seen on positive technicals and the strength of outside markets, taking soybeans to seven-week highs and soyoil to fresh contract highs. But late profit-taking knocked soyoil down and took the complex off its highs.
May beans settled 12 cents higher at US$5.87 1/4 and July ended 10 1/2 cents at US$6.01 a bushel.
"Irrational exuberance," the term coined by former Federal Reserve Chairman Alan Greenspan, comes to mind with prices continuing to climb without the aid of supportive fundamentals, according to independent agricultural analyst John Kleist.
Prices hit an "air pocket" at the opening, sparked by positive technicals, end-of-month buying and sharp gains in the outside markets such as precious metals and energy. "And the funds don't like to short-side," said Kleist.
With the new highs in oil, technically overbought conditions with a relative strength index above 80 in oil, and nearly two-month highs hit in beans, the market was ripe for profit-taking, sources said.
Weather concerns were also on traders' minds as showers are forecast to fall over much of the Midwest this weekend, thus interrupting corn-planting efforts and possibly pushing back any early soybean seedings.
"I think it's definitely a secondary factor," said Anne Frick, oilseed analyst at Prudential Financial in New York. She expects soybean plantings, nationally, around 7% complete when the crop reports come out on Monday.
"We really have all of May to do a good chunk of the soybean plantings," she added.
Moreover, technical considerations and a weak U.S. dollar were more supportive for the soybean market, both of which encourage speculative buying.
The Brazilian real gained against the U.S. dollar, effectively negating the gains made in the soybean pit, a trader said.
A lack of soybean movement in Brazil due to the poor currency exchange rate taking crop prices below the cost of production - despite around 80% of the crop harvested - and subsequent protests by farmers there forced about 30 silos to close Friday in Mato Grosso do Sul.
"It doesn't pay for these poor guys to sell it at these prices because of the dollar relationship and the price of soybeans in real, or their local currency," Vinnie Ito, analyst at Fimat in New York.
"This is considerably lower than the cost of production with an exchange rate 20% to 30% higher (when farmers were purchasing fertilizers and other inputs for the crop) than what it is right now," he said.
In soybeans, ADM bought a net 1,400 July, Rand Financial bought a net 1,700 July, with ABN Amro, Fimat, Man Financial, J.P. Morgan and R.J. O'Brien each buying 1,000 July. J.P. Morgan sold 1,200 November and Term Commodities sold 1,000 July.
Term Commodities spread 2,500 November/July at 18-19 cents, and J.P. Morgan spread 1,200 May/July at 13 3/4 cents.
As of 1330 EDT, funds had bought an estimated 8,500 soybean contracts.
CBOT soy product futures, after a session that saw fresh contract highs in July soyoil and 1 1/2-week highs in July meal, ended poorly for market bulls after soyoil sold off ahead of the close and pressured the complex off its highs.
May oil settled just 7 points higher at 25.72 cents and meal was up US$1.80 to US$173.70.
Higher crude oil prices sparking yet more interest in alternative energy sources were considered supportive for soyoil earlier in the session and helped take the July contract to a new high of 26.57 cents a pound.
But the technically overbought conditions caught up with the market and late profit-taking knocked soyoil prices off their lofty perch just ahead of the closing bell.
In oil, Calyon Financial bought 1,500 July, R.J. O'Brien bought 1,000 July, Rand Financial bought 900 July, ADM bought a net 700 July, Fortis bought 800 July and Fimat bought a net 500 July. J.P. Morgan spread 800 May/July contracts. UBS was a featured seller of 1,500 July oil and Bunge sold 1,000 July.
As of 1:30 p.m. EDT, funds had purchased a net 5,500 oil contracts.
In meal, scattered activity was seen on both sides of the market. J.P. Morgan sold a net 400 July, O'Connor sold 500 July and Tenco sold 400 July and 200 May. Man Financial bought 500 July and Rand Financial bought 400 July and 200 May.
Funds purchased a net 1,000 meal contracts.