The Hightower Report

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NEAR-TERM MARKET FUNDAMENTALS: Hot weather in the Eastern Corn Belt this weekend with no rain in the forecast until Wednesday has helped futures build a weather premium in for the tail end of the growing season. Traders remain concerned that many areas of Indiana and Ohio were too dry recently and any filling soybeans which are not maturing could have seen a negative impact on yield. Hot weather in the southern Midwest along with sudden death syndrome in Iowa are also seen as trouble spots. Traders will be monitoring the weekly crop progress report tonight to see if the crops continued to deteriorate in the past week. Last week, 64% of the crop was in good to excellent condition as compared with 69% last year and 57% as the ten year average for this time of the year. The USDA currently projects a 44 yield, the same as last year. November soybeans pushed sharply higher for the second session in a row on Friday closing 22 cents higher for the week. This took the market to its highest level since August 19th. Impressive gains in equities added to the positive tone in a number of markets, along with the announcement of a fresh sale of 120,000 tonnes of US soybeans to China by the USDA. Basis levels in the interior were mixed. Early harvested soybeans from the Delta moved onto the cash markets at an accelerated pace last week and that brought a downturn in basis levels at the Gulf during mid week through Friday. A Taiwanese buyer bought 57,500 tonnes of US soybeans for delivery during the first half of November. The Commitments of Traders Futures and Options report as of August 24th for Soybeans showed Non-Commercial traders were net long 130,965 contracts, a decrease of 8,029 contracts for the week. The selling trend is seen as a short-term negative force. Commodity Index traders held a net long position of 184,507 contracts, down 2,704 contracts for the week. In soybean oil, Non-Commercial traders were net long 31,659 contracts, a decrease of 16,219 contracts. Non-Commercial and Nonreportable combined traders held a net long position of 43,835 contracts, down 19,658 contracts for the week and the aggressive selling was seen as a short-term negative force. Commodity Index traders held a net long position of 100,297 contracts, down 5,506 contracts for the week. In meal, Non-Commercial traders were net long 67,425 contracts, a decrease of 3,777 contracts. Non-Commercial and Nonreportable combined traders held a net long position of 85,854 contracts, down 2,778 contracts for the week.

TODAY’S GUIDANCE: The COT reports showed that the turn in the weather came just in time for the markets to avoid a significant sell-off of the large net long positions from fund traders in the soybean complex. Yield forecasts will become increasingly important and without a drop of more than 1 1/2 to 2 bushels per acre from last months USDA estimate of 44, the market may struggle with hefty supply into the futures with a forecast for record world ending stocks based on the assumption that Brazil and Argentina production will be down 8 1/2 million tonnes from this year. This means the market is already counting on either a sharp reduction in yield in the US or a continued La Nina drought situation in South America.

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NEAR-TERM MARKET FUNDAMENTALS: A turn up in the stock market late yesterday and a rally in energy markets along with some weakness in the US dollar was enough to spark strong gains in soybeans and products overnight but traders see the upside limited by a favorable weather forecast and a continued flow of new crop soybeans from South America. While investor confidence in commodity markets may be a bit more stable, many traders see the supply fundamentals as a reason to suspect that investors will shy away from soybeans over the near-term. Mostly dry weather this week with only scattered light rain in the forecast into early next week appears to be near ideal weather to see an aggressive plantings pace and a good start to the crop which was already planted. The collapse in livestock prices in the US does not provide confidence in feed demand and has meal traders a bit nervous. Taiwan bought 58,000 tonnes of soybeans from Brazil. Egypt is tendering for 15,000-20,000 tonnes of soybean oil and the same amount for sunoil. Basis levels for soybeans at the gulf were steady yesterday with talk of slow producer selling. There is also less talk in cash circles about any switching of US and South American cargo bookings. A backdrop of sharply lower crude oil and equities and a sharply higher dollar combined with favorable crop weather helped drive the market lower yesterday. The favorable crop weather in the US is reinforcing ideas that this year’s US soybean yields could be higher than the USDA’s current projection of 42.9 bushels per acre. Last year’s US soybean yield was 44.0 bushels per acre under, cool, wet and nearly ideal conditions. One analyst noted that the cooler forecast for the coming weekend and into next week and the possibility of improved rainfall later next week was particularly favorable in that it would keep the current hot and relatively dry spell from lasting long enough to cause stress to recently planted soybean fields.

TODAY’S GUIDANCE: The lack of bearish outside market forces could allow for a short-term bounce in the market but it will likely take a significant weather threat to see much follow-through to the upside. Ideas that China buying in soybeans might slow in the next few months and a surge higher in available supply from South America are seen as bearish forces. Dry weather in the US this week could cause producers to plant even more soybean acreage that anticipated. Keep in mind, if we see a 1 bu/acre increase in yield from last year, soybean ending stocks could increase to near 525 million bushels from 190 million this year and 138 million last year.

TODAY’S MARKET IDEAS: Rallies would appear to be selling opportunities. Downtrend channel selling resistance for November soybeans comes in at 914 1/4 today with 883 and 875 as next downside objectives. Selling resistance for July soybeans is at 945 3/4 with 895 1/2 as next downside objective.

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NEAR-TERM MARKET FUNDAMENTALS: The emergence of heavy deliveries against the May soybean contract yesterday and more today combined with a move to a new one-year high in the US dollar are seen as negative forces. Cold and wet weather in the forecast and the need for some replanting in the southern Midwest region which was hit with flooding rains over the weekend should slow the planting progress next week but this week’s weekly update showed the crop off to a fast start. The weekly planting update showed 15% of the crop was planted as of Sunday compared to 5% last year. The 10 year average for this time of year is 9%. This matched the highest percent complete from 2000. The Argentina Agriculture Minister indicated that 67% of their soybean crop has been harvested so far. There are still no shipping delays from the Gulf of Mexico but traders will monitor the situation closely in the days ahead. With the high dollar and freshly harvested soybeans in South America, buyers don’t need much of a reason to switch to other sources. Brazil exported 4.913 million tonnes of soybeans in April which is up from 3.086 million tonnes in March and up from 4.493 million last year. Meal exports totaled 1.122 million tonnes from 1.148 million in March and 1.296 million last year and soyoil exports came in at 110,800 tonnes from 62,000 in March and 162,500 tonnes last year. A wetter pattern seems to be developing ahead but the year so far has seen just 5.6 inches of rain in Chicago as compared with 10.47 inches last year. In addition, the market faces a much colder than normal trend for late this week into next week. South Korea bought 100,000 tonnes of non-GMO soybeans for Jan-May 2011 delivery. This week’s export inspections for soybeans were 7.2 million bushels, just below the 7.9 million bushels that are needed each week to reach the USDA’s export forecast for 2009/10. This was the lowest weekly shipment number since September.

TODAY’S GUIDANCE: The market looks to come under increased selling pressure with a strong dollar, slowing exports, big deliveries and enormous crops just harvested in South America. Keep in mind, world ending stocks at the end of the 2009/10 season are expected to increase 47% from last year to 62.96 million tonnes. This is the second highest on record. Meal short-term demand still remains strong but this may ease soon. Technically, the market turned down last week with a closing price reversal, a penetration of the uptrend channel of the April rally and follow-through selling this week. The lowest close since mid-April could also attract increased technical selling.

TODAY’S MARKET IDEAS: July soybean selling resistance moves down to 997 3/4 with some light support at 981 3/4 and then 970 as next support. Use 958 1/4 as an additional key support level. July Meal selling resistance comes in at 289.10 with 282.60 and 278.20 as next objectives.

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NEAR-TERM MARKET FUNDAMENTALS: May soybeans rallied as much as 64 cents off of the February 4th lows to this week’s high before seeing significant selling yesterday. Traders indicated that funds and producers were sellers and there remains a concern for the bulls that both South America and US producers become more aggressive sellers at the same time that demand begins to slow. Gulf basis levels slipped 2 cents yesterday but remain high for nearby shipment. Most of the new interest is on Brazil soybeans and traders expect a significant shift away from US origin in the weeks ahead. There are plenty of acres available for planting this coming season with the sharp decline in winter wheat plantings, but corn and wheat followed soybeans lower in January, so there is not too much advantage for producers to move away from a normal rotation. On the contrary, there are some producers who have moved away from a normal corn, soybean, corn rotation in recent years to a corn on corn and then soybean rotation, so that soybeans were grown just once every three years. This worked out well on paper for a few years when ethanol growth supported corn values, but high fertilizer costs and weaker corn values of the past few years may cause producers to shift back to a more traditional rotation. This could result in more active soybean plantings than expected this year. In addition, areas of traditional double-cropped wheat/soybean acres could end up with just one full season of soybeans this year, which would result in higher yields for soybeans. Traders said that the market largely ignored a slightly better than expected January crush rate estimate from the National Oilseed Processors’ Association (NOPA) who pegged the crush at 162.4 million bushels in January. Soy oil stocks were pegged at 2.695 billion pounds, about in line with trade expectations. Weather remains favorable for South American crops. If we assume that producers will plant 1 million more acres this spring and also assumed a slight reduction in both crush and export for the coming year due to the surge in available supply from South America, a trend-line yield at 43.4 bushels per acre could cause US ending stocks to swell to near 410 million bushels, up from 210 million this year and 138 million in 2008.

TODAY’S GUIDANCE: The market has recovered from an oversold condition and the current rally appears to be a selling opportunity.

TODAY’S MARKET IDEAS: Selling resistance for May soybeans is 974 3/4 with 935 1/2 and 932 as support. Keep 894 1/2 as downside objective. July meal selling resistance moves down to 277.20 with 266.90 as support. July oil support is near 38.98 with 40.38 as next resistance. Consider entering bear put spreads in July soybeans such as the July 970/880.

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NEAR-TERM MARKET FUNDAMENTALS: While soybean ending stocks came in a bit tighter than expected for yesterday’s USDA update, the market still faces higher supply ahead and record crop production from South America. South America weather seems to be improving and the Brazil government crop estimate for soybean production is up at 66.7 million tonnes as compared with the USDA at 66 million yesterday, 65 million in January and 63 million in December. All are record highs and compare with 57 million last year. Argentina production is expected at 53 million tonnes, up 21 million for last year. The surge in production could be one reason to suspect that total usage of soybeans in the US could slip lower for the 2010/2011 season. Even if we hold usage and planted acreage unchanged, a trendline yield for the coming season would likely push ending stocks higher. If we assume a 1 million acre increase and a slight reduction in export and crush (both numbers record highs in yesterday’s report) ending stocks could come in well above 325 million bushels. China imports of soybeans in January slipped to 4.08 million tonnes from a record 4.78 million in December. Traders believe that large imports and spreading pig disease led to lower crush margins or even negative crush margins for China crushers by the end of January. The USDA left domestic usage of soybean oil for bio-diesel production unchanged from last month in the February update at 2.2 billion pounds but many traders believe this could improve as the year progresses and increase for next crop season to near 3 billion as compared with total usage at 19.16 billion pounds. Oil again gained sharply on meal yesterday, taking that spread to the most extreme advantage for oil since May 2009 in terms of the contract value difference for the March futures contracts. Positive policy steps taken recently with regard to the bio-diesel mandate and Russia’s banning of poultry meat imports from the US are factors which may have supported the spread. The USDA lowered US soybean ending stocks to 210 million bushels from 245 million last month. Traders had been looking for number near 217 million. Exports were increased by 25 million bushels and the US crush was raised by 10 million. World soybean ending stocks were left near unchanged at 59.73 million tonnes, up 43% from last year and up to the second highest level in history. This pushes the world stocks/usage to 25.4% as compared with 18.7% last year and 23.1% the previous season.

TODAY’S GUIDANCE: We were hoping for a better bounce to sell.

TODAY’S MARKET IDEAS: Selling resistance for May soybeans moves down to 945 with 921 1/2 as first support. Use 894 1/2 as next downside objective. July Meal selling resistance is at 267.30 with 255.80 as next objective. Buying support for July oil is at 38.47 with 40.38 as next objective.

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NEAR-TERM MARKET FUNDAMENTALS: Trade reaction to the State of the Union address was somewhat positive for financial markets, and grain traders saw some relief from the bearish outside market forces overnight. However, there is still significant concern that the bank regulation reforms could in the long run spark increased volatility in the futures markets. Ideas that the market is in a short-term oversold condition and that reforms will not occur for months or longer have helped to provide some support. There are unverified rumors that China has switched two cargoes of US soybeans to South American origin and that there is one US cargo of soybeans under quarantine in China for quality concerns. On top of fears that bank trading restrictions could lead to futures volatility, China traders are concerned that the tightening credit situation there could lead to a near term slowdown in commodity demand and at least temporary pressure on many commodity markets. A strong US dollar, a weak Brazilian currency and talk of hedge funds shifting from a net long to a net short position in soybeans are factors which have helped to pressure the market. Argentina crushed 1.5 million tonnes of soybeans in December, compared with 2.26 million tonnes in November and 2.37 million in December 2008. March soybeans fell to their lowest level since October 8th yesterday with good volume noted. Growing conditions continue to be very favorable in Brazil with forecasts calling for an improvement over current hot and dry conditions in Argentina by the end of next week. Brazil is expecting scattered rains over the next several days, while Argentina may start getting scattered rains on Saturday and again to start next week. Indications of cooler and wetter weather in Argentina for later next week could ease stress concerns. The Census Bureau will issue its latest monthly crush data this morning. Traders are looking for the crush rate to be nearly 173 million bushels for December. Export sales will also be released this morning with expectations currently ranging up to 900,000 tonnes for soybeans, up to 300,000 tonnes for meal and 5,000 to 20,000 tonnes in soy oil. The outlook for surging soybean stocks for the coming year as record crops from the US, Brazil and Argentina move in to saturate demand has helped shift the psychology in the soybean complex.

TODAY’S GUIDANCE: Eventually, the market looks to end up with too much meal and a tightening supply of world vegetable oils. The market is in a short-term oversold condition, but rallies still look like selling opportunities. Selling resistance for May soybeans comes in at the 949 3/4 and 960 3/4 with 932 3/4 and 904 1/2 as next downside objectives. November soybean selling resistance is at 936 3/4 with 909 1/4 as next downside objective.

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NEAR-TERM MARKET FUNDAMENTALS: Strong demand from crushers and a weak US dollar were seen as the primary reasons that fund traders turned more aggressive buyers yesterday. The market continues to see a clash of short-term supportive demand fundamentals with the longer-term outlook (beginning February or March) for a surge higher in world production and increasing world soybean supply. Good weather in South America is seen as a negative force but demand continues to come in stronger than expected for US soybeans. The NOPA pegged the US November crush at record 160.3 million bushels versus expectations of near 156 million. This was up from 155.3 million bushels in October and up sharply from last year’s recession-reduced total of just 139.4 million bushels. Soy oil stocks as of the end of the month stood at 2.411 billion pounds, up from 2.286 billion last month. Ideas that there may be continued support from index fund buyers into early next year was seen as a supportive force. Funds were active buyers on the session for soybeans and meal and cash markets were steady with strong export and crush demand able to absorb the flow of farmer selling. Oil saw some selling pressure from China announcement that it would release rapeseed and soy oil into its domestic market in order to maintain supplies and keep prices stabilized. There was also willingness to release soybeans from reserves to help ease prices. Moisture levels have improved in Argentina recently with up to 1 inch of additional rain expected later in the week and into the start of the weekend in major growing areas seen as a factor to see improving conditions. Southern Brazil areas look to see periods of dryness into Friday which should allow for some increased harvest activity and allow wet planted areas to dry out which is seen as beneficial. An EPA spokeswoman indicated yesterday that the agency will issue final rules on revisions to the renewable fuel standards in early January.

TODAY’S GUIDANCE: We continue to believe that there is enough supply on the horizon to be able to turn the short-term trend down in soybeans but fund buyers continue to emerge on days of new China demand or on days of a weak US dollar. Perhaps the clear and decisive turn up in the dollar overnight will be seen as a negative force. March soybean resistance comes in at 1062 3/4 and a close above this level would suggest a continuation of the uptrend with 1105 as next upside target. However, a move back under 1056 and especially 1049 1/2 might be seen as bearish signals. For now, keep 1019 3/4 and 1004 3/4 as next downside targets.

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NEAR-TERM MARKET FUNDAMENTALS: Without help from outside markets, soybeans came under pressure overnight as the market resorted back to the outlook for good harvest weather this week and bearish news from the USDA this week which attracted new selling. Funds have been active buyers of soybeans and commodity markets in general recently with a declining US dollar and a very easy-money policy by the Fed helping to attract new investors. Solid gains in the US dollar appear to have turned the psychology more negative for those commodity markets which do not seem to have the fundamentals to move higher. For soybeans, the outlook for US ending stocks to increase by 95% to 270 million bushels and world soybean ending stocks to increase by 35% to 57.39 million tonnes has soured the price outlook. In addition, traders are not ruling out an even higher yield and higher production for the US as harvest weather has turned from near disastrous to near ideal. The USDA also reported record high production forecasts for Brazil and Argentina for the coming season for the crops which are just being put in the ground. There are still concerns with the dry pattern for key growing areas of Argentina but at this early stage, traders seem to be taking a wait-and-see attitude regarding the slow planting pace with planting progress near 33.8% complete as compared with 40.8% as normal. Argentina is expected to see some rain early next week although this could miss the very dry southern soybean belt there. Dry weather is expected in all areas until then which will increase the need for moisture, especially in the western and southern growing areas. Traders believe China buyers will slow down on purchases in the coming weeks, according to a survey of buyers from the China National Grain and Oils Information Center. China has already booked near 15 million tonnes of US soybeans and there is talk that they are booked through January. October soybean imports from China reached just 2.52 million tonnes which was down for the 4th month in a row and compares with peak of 4.7 million tonnes in June. Funds were noted as active buyers yesterday but there is a growing concern that funds could turn sellers if we go through a period of steady or higher trade in the US dollar. The latest weather forecasts call for increased rain in the Midwest from late in the weekend into early next week. The weather models overnight seem to be even wetter for early next week. Dry weather into the weekend should keep harvest active. Gulf basis was firm yesterday. The overnight deliveries against the November soybean futures contract were 222 contracts. Friday will be the last trading day for November soybean futures.

TODAY’S GUIDANCE: The market appears poised to push sharply lower “if” the fund buying spree slows and the focus shifts back to the soybean market fundamentals. A series of lower highs off of the October 23rd highs leaves the technical set-up a bit negative as well and a short period of a higher or even steady US dollar could spark aggressive selling from funds.

TODAY’S MARKET IDEAS: March soybean selling resistance comes in at 979 with 967 1/2 and 941 1/4 as next objectives. Use 905 1/2 as next downside target. January soybeans look set to test key support at 940 1/2 with 971 1/2 as close-in resistance. March Meal selling resistance is at 285.40 with 267.40 as next swing target.

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NEAR-TERM MARKET FUNDAMENTALS: Yesterday brought another round of substantial gains in the soybean complex with support coming from fund buying as it did on Monday. Traders also cited a sharply higher gold market and forecasts of moderate rains in some harvest areas in the Midwest early next week as a source of support. Heavier amounts of rain are expected in much of the Delta and parts of the mid south next week, but these rains are not expected to be as widespread or heavy as previous rains in that region. Some forecasts indicate that this next mini-wave of rain will be followed by another dry spell in virtually all harvest areas through the end of next week. This could allow soybean harvesting to get closer to completion by the end of next week. Weather remains mostly favorable in Brazil with planting progress said to be well above normal. Planting is most advanced in Mato Grosso with recent rains slowing the pace somewhat in parts of southern Brazil. Argentina is generally drier than in neighboring Brazil, but recent rains have improved planting conditions. Brazil’s trade ministry reports that October 2009 soybean exports were 722,700 tonnes, down sharply from 1.830 million tonnes in September and also down from 1.061 million tonnes in October, 2008. Brazilian meal exports were also down versus September and last year while oil exports posted a small gain versus September. Deliveries against the November soybean futures contract were 220 contracts this morning. These were the first deliveries that have been made so far against the November contract.

TODAY’S GUIDANCE: Yesterday, the soybean complex and grain markets signaled that Monday’s late rally was not a fluke. Funds were buyers again and soybeans pushed well above Monday’s highs. This suggests that last week’s setback was merely a correction and that the intermediate term trend is higher. Bull spreads continue to gradually work higher as a result of the big window of demand for US soybeans and products prior to the harvest of South American crops next spring. This was illustrated in the big export inspection number on Monday which tells us that the time has come to ship the soybeans that China and others have been buying at an aggressive pace for the past several months. Add the surge of fund buying to the mix and this could carry the January contract to as high as 1107 by early 2010. A series of support levels fall in at 996, then 983 to 985 and then at 968 1/4. First resistance is at 1029 1/4 and then near 1049.

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NEAR-TERM MARKET FUNDAMENTALS: The soybean complex saw a mixed performance on Friday with soybeans and meal giving back some early gains, but closing higher. Wet weather late last week and into Saturday matched expectations. Forecasts call for heavy rains in the western Delta today with that rain pushing east and north into the mid south and Deep South by tomorrow. A band of mostly light rains is expected from East Texas up through southern Wisconsin with areas to the east and west of this band staying mostly dry. The Commitments of Traders Report for the week ending October 20th showed net buying by funds as expected on the recent rally. In soybeans, trend-following funds were net buyers of 6,713 contracts while index funds were net buyers of just 382 contracts. Trend-followers were big buyers of 14,554 contracts in soybean oil which reduced their net short position to just 2,333 contracts. Index funds were net sellers of 1,261 in oil. In meal, large non-commercial traders were net sellers of just 785 contracts. The Malaysian government has proposed reducing the blend of palm-based diesel fuel to 2-3%. The government had been expected to raise their bio-diesel mandate to a 5% blend in 2010. The proposed reduction is thought to be due mainly to higher prices and a need for the government to save on the cost of related fuel subsidies. Malaysian palm oil exports were estimated to be up 6.8% for October 1-25 from last month according to an independent cargo surveyor. Good weather in Brazil and the move by many producers to plant early and to plant early maturing soybeans could help ease the tightness expected on the world market for early next year. Traders continue to look for a very large production from Brazil, Argentina and Paraguay for 2010. Beginning January, Brazil will raise the biofuel content of its diesel to 5% from 4% previous.

TODAY’S GUIDANCE: Traders are worried this morning that price action in corn and wheat on Friday constituted a reversal of the September-October rally. If it did, this could threaten the rally in the soybean complex as well. However, price action in soybeans was much more mixed on Friday and that may throw traders’ attention back on the dollar which was lower overnight. This supported the complex overnight amid the expected harvest delays from last week’s late rains and some mostly light showers to start the week. Last week’s strong export sales figures continue to run counter to ideas that China and others have already booked much of their needs into early 2010 and that they are shifting their buying to South America for spring shipment. Taking profits on rallies in soybeans is ok, Getting short is not. First support remains at 1000 in January soybeans with next support near 982 to 985 and then near 975. We would still put light and temporary resistance at 1028 1/2 even though the January contract pushed just past that level on Friday. More substantial resistance lies in a zone from 1040 to 1050.

TODAY’S MARKET IDEAS: The soybean market had every reason to break sharply on Friday, but it did not. However, today may be the key test for bulls.