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Soybean market is overbought

Soybeans: China announced it will expand soybean reserves from 6 to 7.25 million metric tonnes this week. In addition, we were surprised to see they are not done buying old crop yet. The other issue here is how low can this Argentina crop get? Will USDA have to lop off another 5 mmt off their current Argentina estimate?

Soybean Planting: Last week we were 3% planted. We would guess Monday's report will show a moderate 6% complete. The five year average will be 11% done. It is too early to be concerned about soybean planting.

Outside Money Positions: Up until last week the Trading Funds had been buying for seven weeks straight. The week ending 4/28, they sold 13,623 contracts. We would imagine from Tuesday to today they bought all that back and increased their net long position. Index Funds, the long-only traders, had been doing the same thing. They bought for several weeks in a row but sold last week. Overall, the clear trend of buying by Outside Money is bullish.

Direction: Friday posted new highs for uptrend. It also broke the April and January highs. While we have suggested a better case for a spring high for corn we still can not call it for soybeans. We still expect this market to hang up here into mid planting. We do remain bearish for a long term move into harvest but for now, this remains an old crop driven market. Old crop is bullish for now…Rich Nelson

Trade Idea(s):
(05/01) Buy July 1065, risk 1045, objective 1125. Closed 1091.
Option Strategy(s):
(04/16) Bought July 980 put 40, risk to 20, objective 75. Closed 28 3/4.

Soybean Technical Commentary:
The bean market rallied hard in the last 15 minutes of trading Friday and closed above the Jan high at 1076. We have to go back to Sep 2008 to find resistance now at 1150. The market is overbought though, so it could correct very quickly.

Vital Technical Indicator: the next projected major turn day for soybeans is May 13, soybean meal is May 12, and soybean oil is May 11.

Hogs: Generally these viral/disease problems are more of an export issue for US meat markets. US consumers are generally not too concerned about safety of their meat, unlike the rest of the world. The good news is if export bans are lifted, that means less meat for US consumers are therefore higher prices. We cannot say we will get the Mexico pork market back yet because their consumers have made significant changes. However, if Russia and China and the smaller players get rid of their bans we can likely get back half the down move. That is a great story but until that happens we will not be buying speculatively. Today we had conversations with two people connected to the wholesale pork arena and two people involved with the financial picture of the pork industry (funds that invest in pork companies). The wholesale pork guys told a gloomy picture and said nothing is moving. The financial guys were concerned about new outbreaks. The net result is we still feel this market is clearly undervalued. However, for the short term it is still trying to find proper value.

Outside Money Positions: For five weeks in a row the Trading Funds had been moderately lightly and are net short. During that same time Index Funds have been lightly buying, but not as much as the Trading Funds have been selling. The net effect from Outside Money is bearish.

Smithfield Foods on CNBC: In case you missed it, Smithfield Foods Inc. CEO Larry Pope appeared on CNBC's Street Signs show at 1pm central time Friday. As you are likely aware Smithfield it the nation's largest pork producer as well as the largest pork processor. Smithfield also has partial ownership in hog farms in Mexico. He did an excellent job in clearly answering questions from CNBC personality Erin Burnett. There was talk this week that the origin of the H1N1 outbreak was near a Smithfield hog barn down in Veracruz, Mexico. Mr. Pope explained clearly, that no pigs in any of their barns in Mexico, no workers in their barns, and no workers in the processing facilities have shown any signs or tested positive for H1N1. He clarified that even if there was the virus in the meat that it was still safe to eat. He also clarified that Mexican health officials had been invited into the barns to test the hogs, they tested them, and even finished and deemed the area and their hogs completely safe. He also clarified that so far there is no connection at all with swine and this H1N1 outbreak. Mr. Pope also clarified there was no need, at all, for any of the current bans on pork some counties have imposed. He did a good job. Everyone in our headquarters who watched the interview agreed the only thing we would change is this interview should have been done Monday morning!

Direction: There is no solid way of forecasting prices right now. This market was set for the strong run into mid-May but now futures are implying cash hog prices will actually slowly erode. Doing that into May is almost unheard of. We will tell you with all confidence this market is undervalued and it is highly likely we will be at significantly higher prices later on. However, in the short term, this market is not finished taking care of new business (H1N1).

Where's Your Risk?: One point we have to note is market moves like this reveal shortcomings in risk management. While everyone is focused on entering a trade at the right time or price half the job is the exit. For speculators, every trade entered should have a clearly defined risk already decided at the time of entry. We must understand if a stop gets hit, it got hit for a reason. The risk on our moderately bullish trades was filled this week and we will happily take that minor lump.

Trade Idea(s):
(04/30) Stand aside.
Option Strategy(s):
(04/30) Stand aside.
Lean Hog Technical Commentary:
With the hog market gapping higher today, this created an Island Bottom on the chart as shown above. The close was weak though, so it may get violated as soon as Monday. We'll continue to stay out of the futures for now.

Vital Technical Indicator: Next projected major turn day for lean hogs is May 6.

Soybeans: China announced it will expand soybean reserves from 6 to 7.25 million metric tonnes this week. In addition, we were surprised to see they are not done buying old crop yet. The other issue here is how low can this Argentina crop get? Will USDA have to lop off another 5 mmt off their current Argentina estimate?

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