Bean Woes Continue
Thursday, November 17, 2011
Soybean fundamentals remain extremely bearish at the present. The large US Soybean crop, a good start to the South American growing season, and concerns over European debt may be obstacles too large for the Bean market to overcome. Technically, the January Soybean chart shows prices lingering above critical support near the 1150 level. Some traders may look to enter into a bearish option strategy, such as a bear put spread, buying the January Soybean 1150 puts and selling the January 1100 puts for a debit of 10.00, or $500. The trade risks the initial cost and has a maximum profit of $2000 if the January futures close below 1100.00 at expiration.
Fundamentals
Soybean futures have been unable to find solid footing amid softer demand and the never ending saga of the European debt crisis. The USDA's soft estimate of demand has been like a black cloud hanging over the market in recent sessions. Prices were firmer yesterday, after rumors about a large purchase of US Soybeans by China had surfaced -- although the rumor had not been confirmed by China. The recent disarray in Europe has many traders concerned over its impact on commodity demand. In addition to creating demand concerns, the European debt crisis has aided the US Dollar and created a secondary problem for US grain demand. Importers may look to other nations, most notably South American grain producers, to fill the void. The USDA's projections for Soybean demand are rather dismal. It may not take much in the form of strong overseas demand to bring the bulls into action. Sustained rallies, however, may be difficult to come by. South America has had ideal growing conditions to kick off the growing season there. Also, fresh demand may be difficult to come by, as many traders view the Soybean purchase by China, if true, to simply be a restocking of reserves.
Technical Notes
Turning to the chart, we see the January Bean futures unable to make much headway after trading down into the 1160's. Support at the 1150 level can be seen as critical, as there is little support between 1150 and 1000. A violation of this support level could bring violent selling action with it. To recapture upward momentum, Bean futures will have to take out recent highs near the 1275 level.
Rob Kurzatkowski, Senior Commodity Analyst
