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Soybean price outlook remains bearish

Soybeans:  Last week, we listed many reasons for a potential sell off in beans to occur. There were a few more that should be mentioned.

 

· Beans were called lower on a failure to break the down trend line Thursday.

· One US firm released their yield estimate for the report this week at 44.0 bu.

· Support of $9.02 was taken out and stops were run through.

· Above raised Brazil's soybean estimate, now at 63.4 mmt.

· Support of $8.92 was taken out and stops were run through.

· End of day selling came from those who had bought earlier in the day.

This was a high volume sell off which gives it more confidence than the recent low volume choppy trades we had seen recently. There does stand a chance for a bounce as beans approach the next and most important support level of 881 1/4. We are also looking at the possibility of a wet weather forecast that could give a small bounce early next week. Overall, the market showed us today that harvest pressure is on and expected to continue. One US analysis firm started the ball rolling lower with a good sized corn yield estimate and the market will likely not bounce too much next week. We look for a 43.1 yield on next Friday's USDA yield report. That is up from USDA's latest 42.3. As with corn the talk we are hearing from producers are that bean yields on a whole are at or above expectations. This of course does not to suggest that all yields look good but enough do to keep us bearish this market. We are trying to take a broader look at yields and not focus on what local beans look like. If we did we would have been buying all day. As an example, we have harvested 27 acres of beans so far on our farm, yield was 34 bushels. We need to look everywhere for price direction: Argentina, Brazil, national yields and much more. For this reason we will remain bearish to the beans as well.

Direction: There is a chance to see a small bounce due to rains next week slowing harvest. With the crop report at the end of the week looming over the market there is unlikely to be a large move higher. Things should stay sideways for the most part until we see the USDA yield.

Trade Idea(s):
(09/21) Sold Nov 924, objective 885 filled 10/02 for +$1,560.
Option Strategy(s):
(06/09) Sold Nov 1240 call/sold Nov 800 put 62 1/4, risk to 19, objective 0. Closed 3 5/8.
(06/16) Sold Nov 1220 call 45, risk to 11, objective 0. Closed 2.
(09/24) Buy Mar 920 put, sell 1020 call, sell 800 put for 10 cents cost. There is margin required with this, but you are in a position to make 120/bu if the market breaks while leaving a 100/bu upside open before you are locked into a short.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Soybean Technical Commentary: Once beans failed to get past the 10 day MA, the market began its sell-off. The mid-September low at 892 was broken and the July lows were tested at 881 1/4. Monday's trade will be key to see if this support level can hold.

Vital Technical Indicator: the next projected major turn day for soybeans is October 9, soybean meal is October 9, and soybean oil is October 8.

Closing Cattle Commentary

Live Cattle: This morning's monthly jobs report was worse than expected. Instead of losing 180,000 jobs during the month of September, as was expected, the Department o Labor estimated 263,000 were lost. The bad news here is people who don't have jobs, or people who don't feel secure in theirs, will not buy a premium protein like beef. This makes it harder for beef salesmen to sell the product and therefore for feedlots to bargain with packers. The other measure of this jobs report is unemployment. It now stands at 9.8% which is the highest since June of 1983. This week cash cattle traded to $83. Current October futures suggest an $82 trade at the end of this month and $83 is what December is pricing for the end of the year.

Having pointed out this bearish news, let's at least try to find something positive. The good thing about this report is we know the worst of the monthly declines is way past us. A chart of these monthly job declines shows, even with this month's number included, it is clearly slowing. For the short term we will stay negative for trades. We would guess this employment chart one month from now will show something near the 160,000 loss range which may restart optimism.

Allendale's Livestock Producer Survey Results: Last week Allendale brokers in both our headquarters, and branch offices, did a four day phone survey of Allendale livestock clients. We asked hog and cattle producers, throughout the value chain, questions about production changes, livestock prices, and corn prices. We thank those of you who helped with the survey. Those of you who helped will start getting your copies. Producers, from the cow/calf, backgrounding, and feedlot levels were consistent in the plans for 2010. When you get the survey, see which groups were making the biggest changes!...Rich Nelson

Trade Ideas(s):
(09/28) Sold Dec 86.40, objective 85.20 filled 10/01 for +$480.
Option Strategy(s):
(09/29) Sold 1 Dec 84 put 1.25, risk to 1.80 filled 10/02 for -$220.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Cattle Technical Commentary: Cattle also plunged lower today and posted a new low for the move at 83.90. This is very close to the overall contract low at 83.85. High volume was seen today, which indicates this weakness could continue.

Vital Technical Indicator: Next projected major turn day for live cattle is October 27 and for feeders is October 14.

Rich Nelson
Director of Research
Allendale, Inc
4506 Prime Parkway
McHenry, IL 60050
800-262-7538

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Soybeans:  Last week, we listed many reasons for a potential sell off in beans to occur. There were a few more that should be mentioned.  

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