January soybeans closed 2.25 cents lower on volume of 216,581 contracts. Total open interest declined by a massive 30,332 contracts, which in relation to volume is 550% above average. The massive decline in open interest was predominantly due to the large decline of 36,246 contracts in the November contract. The November contract continues to weigh on the entire soybean complex. As this report is being compiled, January soybeans are trading 37.00 cents lower.
Continued liquidation by speculative longs, or commercials that do not want to hold soybeans past 1st notice day is dramatically impacting the market. As of the close of business on October 26, there remains 85,132 contracts to be liquidated, and therefore additional pressure on soybeans can be expected. Another factor is, due to the storm, many markets are closed. Also, the harvest of the crop continues, and normally the crop progress report would be released after the close on October 29. This is going to be delayed, and the Department of Agriculture has not specified when the report will be released.
October 29: From Andrew Johnson at Dow Jones:
“Soybean futures are under pressure from improving weather outlooks in Brazil where farmers are planting soybeans to be harvested next year. Brazil, the second-largest producer after the US may harvest its largest crop ever next year and surpass the US as a global leader, according to analysts and government forecasters.”
“Declines in soybean futures are likely to be limited by tight overall supplies, both in the US and overseas. This past summer’s severe drought reduced the U.S. and production in South America drop sharply last season due to droughts there.”
“Soybean buyers such as China, the world’s largest soybean importer, are expected to soak up U.S. until South American farmers start harvesting their crops early next year.”
“Traders said futures are expected to also draw near term support from U.S. cash prices for soybeans that are unusually strong for the harvest season. Cash market supplies are tight, and end-users such as soybean processors, are finding a tough to secure soybeans. Farmers flush with cash from the harvest are not interested in marketing grain and are looking to limit sales until January for tax reasons.”
On a couple of occasions, we mentioned that the biggest problem for soybean exporters and processors will be the increasingly difficult problem of obtaining soybeans from farmers. As farmers continue to hold back supply, processors and exporters will become aggressive bidders for product. This could result in a very sharp increase in soybean and meal prices.
Despite the bullish outlook for soybeans, speculators must be practical, and make sure that sound money management is in place. Do not hold a position if you begin to feel uncomfortable about it. The most important thing is capital preservation because there will be another opportunity to get long, if you liquidate. Another factor that stands out on October 29 is the relative strength of corn and wheat versus soybeans. The supply and demand fundamentals for soybeans far surpasses that of corn and wheat. Yet corn is trading about unchanged, and wheat is trading lower by 4.50 cents.
December soybean meal closed $2.00 higher on volume of 54,039 contracts. Open interest increased by a gargantuan 3,909 contracts, which in relation to volume is 175% above average, and indicates massive commitments to soybean meal and longs were in control. From October 23 through October 26, open interest has increased by 12,895 contracts while December meal has increased by $12.40. This is bullish price and open interest action. The comments made about money management for soybeans is applicable to soybean meal as well. In our view, there is no doubt that soybean meal is moving considerably higher, but speculators must be practical. If any client is uncomfortable with the amount of risk in a current position, they must liquidate. As is the case in soybeans, there will be numerous times to get long, but for now the chief priority is to keep losses small. It is unknowable how much longer the liquidation cycle in the bean complex will last. Do not worry about catching the bottom because there is plenty of money to be made in the middle of the move.
December corn lost 4.25 cents on volume of 187,047 contracts. Total open interest declined by 1,264 contracts, which in relation to volume is massively below average. However, the December contract lost 12,848 contracts of open interest, and it was the increase of open interest in the forward months that caused the total to be a positive number. We are seeing an extremely bearish pattern developing corn with respect to price and open interest. For example, corn prices have declined for 5 consecutive days and on each day, open interest increased, which is bearish. From October 22 through October 26, open interest has increased by 12,438 contracts while December corn has declined by 23.75 cents. Stand aside.
December wheat lost 9 cents on heavy volume of 94,861 contracts. Total open interest declined by 1,827 contracts, which in relation to volume is approximately 10% less than average. The December contract lost 7,760 contracts of open interest. Unlike corn, price and open interest action is not acting in any discernible pattern. Stand aside.
December crude oil gained 23 cents on volume of 412,544 contracts. Open interest increased by 2,739 contracts, which in relation to volume is approximately 70% below average. As this report is being compiled on October 29, crude oil is trading $1.04 lower and has made a new low for the move at $84.66. Late last week, we advised clients to take profits on their long put positions and stand aside. At this juncture we see no compelling reason to be involved in crude oil.
December heating oil gained 3.12 cents on heavy volume of 201,546 contracts. Open interest declined by 5,744, which in relation to volume is just slightly above average, meaning that liquidation was a little bit heavier than normal. During the past 3 days, open interest action relative to price has been acting in a bearish congruent fashion. Stand aside.
December gasoline gained .0094 on volume of 165,232 contracts. Open interest declined by 4,042 contracts, which in relation to volume is average. During the past 4 sessions, open interest has declined by 17,185 contracts, while December gasoline has gained .0067. Stand aside.
December copper closed unchanged on volume of 58,716 contracts. Open interest declined by 3,695 contracts, which in relation to volume is 135% above average, meaning that liquidation was heavy. During the past 4 trading sessions, open interest in copper has declined by 10,496 contracts while December copper declined by 8.15 cents. The market has experienced a massive amount of liquidation, and as this report is being compiled on October 29, December copper is trading 4.80 cents lower and has made a new low for the move at $3.4820. On October 22, December copper generated a short-term sell signal, but has not yet generated an intermediate term sell signal. Stand aside.
December gold lost $1.10 on volume of 140,072 contracts. Open interest increased by 2,256 contracts, which in relation to volume is approximately 25% less than average. As we suggested in the Weekend Wrap of October 28, clients might consider writing out of the money puts for the December contract. For the reasoning behind this, please see the October 28 report.
December silver lost 4.2 cents on volume of 37,105 contracts. Open interest declined 338 contracts, which is approximately 50% below average. In the October 28 report, we suggested we suggested that clients consider writing out of the money puts for the December contract. However, silver is more volatile than gold, and therefore there is more risk to the position. For more information on this trade, please see October 28 report.
The December euro closed 16 points lower on heavier than normal volume of 261,956 contracts. Open interest increased by 4,050 contracts, which in relation to volume is approximately 30% less than average. The 50 and 200 day moving averages are converging at 1.2836, which should provide good support. On the other hand, it appears that the euro may be close to generating a short-term sell signal. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 0.75 points on volume of 2,091,190 contracts. Open interest increased by 17,496 contracts, which in relation to volume is approximately 50% below average. We continue to think the market is headed lower, and long puts should be maintained.
On October 26, Apple Computer generated in intermediate term sell signal. On October 11 it generated a short-term sell signal. Please see the October 28 Weekend Wrap for further discussion on Apple Computer.