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Market Plus: Mar 21, 2008: Darin Newsom, market analyst

posted on March 21, 2008

Market Plus: Mar 21, 2008: Darin Newsom, market analyst Pearson: This is the Friday, March 21st, 2008 version of Market Plus. Glad you've joined us at our Market to Market Web site. Tell your friends and neighbors. Well, I want to talk about pretty much one thing and that's soybeans because the price movement that we had in soybeans looked so bearish this week. I mean, it looked like there was no place you could stand where you'd have firm footing in the soybean pit. It was just -- these limit down days were just strong. Help me out here. I've talked to a lot of producers and you said on the show, we missed it -- is that going to cause people to sit around do you think and not make sales? Are we going to wait for a weather market? If the weather is wet and cold and it stays wet and cold and we get into late May no matter what people have done they'll start planting more beans than corn, you know that. What is ahead?

Newsom: I tell you what, you can go down the whole list of factors in the market right now and it's very hard to find one that's bullish beans. Looking at the chart we had a bit bearish technical signal two weeks ago on March 7th on the continuous weekly chart, this has helped to spark or indicated that we were about to see heavy, non-commercial, long liquidation which is exactly what's happened. You add to that the 60 million metric ton crop projected coming out of Brazil, 46, 47 million metric tons coming out of Argentina, the expectation for the United States to plant more acres, possibly up to 71 million and then if we have any weather problem that delays corn, yeah, we could even expand that number out to 72, 73. So, there's a long list. U.S. dollar is strengthening, what is that going to do to exports? Right now it's very hard to find a reason to think that soybeans are going to be able to gain their footing again. This was the fear throughout the winter what happens when this market turns. It's basically if we look at it, it's the reaction, it's the action of a normal supply market. Supply markets come to and end with the next harvest and that next harvest in beans is going on in South America and we had pushed this market so far that it's very, very volatile, very, very dramatic coming down. Now, we've moved through some support, no doubt about that, the market looks like in the November contract it's coming back to about 10.5, possibly the front month contracts coming back to about 10.5 as well. So, we've still got some room to the down side. I'm still not real strong advocate of selling into this kind of hole. Could it get worse? Yeah. But we may be able to find a little bit of flooring, a little bit of support if this market comes down and if there's any problems in South America and we have to still use U.S. beans in the world market. A lot of things that could still happen. But if we do get a market to rally, if we can get the market to rally this spring at some point we can start making some sales again.

Pearson: And, of course, usually those opportunities happen and the South American crop, as you mentioned, is being harvested, it's by no means in the bin and by no means does that mean that they're going to be able to get that product out into the export markets right away anyway. But there has been a cooling of concern about the amount of soybeans and byproduct available from soybeans. And, yeah, you're right, there doesn't seem to be a lot of up side. Talk about that negative trend that you saw on the weekly continuation charts back on March 7th.

Newsom: What bothered me that week is that we went to a new high.

Pearson: We never talk about technicals on this show and we should.

Newsom: That's where I come in I guess because that's what I look at, I like to look at the charts. We went to $12.71 on the front month contract, new high, new high for this move, new all-time high depending on who you talk to. That same week after going to $12.71 we moved below the previous week's low, closed below the previous week's low. If you go back through a technical analysis textbook that is a picture perfect example of a key reversal. What that normally means is that the market is getting ready to back off 33% to 50% of the previous up trend. That's exactly what we've done. We've pulled back 33%, we're targeting the 50% retracement. What that means is it was an indicator that the non-commercial traders were getting ready to come out of the market, they were starting to get out of the market. Those that were coming to the party late were getting caught up in the high end of the range. Those that had been holding for quite some time were starting to get out. They got out that week, they've been getting out every week since and the market has responded, it is reacting, it's shown that same sort of thing. Now, what's interesting is that this week's activity has shown us the very same indicator, the very same signal in the gold and the crude oil markets, two very key commodities if we're looking at commodity as a whole. These are two very large investment commodities and they have established the same sort of signal. Is this trying to tell us that indeed this bubble has burst and that commodities are getting ready to come down because if gold and crude oil come down sharply it's going to be very hard to rally any of these commodities at this point.

Pearson: A farmer talked to me Thursday morning and said, you know what, we've got beans coming down, bean oil and meal in particular is coming down and crude oil. Yeah, it's dropped from $1.12 to $1.02 but relatively speaking it's still darn high compared to soybeans. So, those things are going to have to play out, aren't they, and his feeling was that this soybean thing maybe has been overdone relative to other commodities?

Newsom: And that's a question that gets asked a lot. How overvalued are these markets? How overvalued did these markets become due to the investment buying that has been occurring since basically 2005 in the grains? We simply won't know that until we start to back off and until we start to find that commercial buying. Now, you're right, in the crude oil that could come in much quicker than we've seen it in the grains. We've got summer demand, possibly building in the gasoline market and that could help support the crude oil. But if we don't see that, if we don't see that type of demand come in then, yes, crude oil could even be overbought at this point, overpriced, it could continue to come down. All these indicators right now are saying the same thing, we've got some problems as far as money coming out of this market. It's going back to the stock market. It's going back to other more historical investments that they've done over the years. This could create a price vacuum or a buying vacuum in here where there simply isn't the orders to support these markets.

Pearson: It's been a wild week, you predict more of the same?

Newsom: Yeah, I do and Sunday night's activity, we start the weeks now on Sunday night, electronic trade overnight, I think it will be very telling. If we see limit down moves again in soybeans like we've seen the last few days spilling over into corn, possibly affecting wheat we could be looking at a very, very interesting week once again.

Pearson: Alright, well Darin, as usual we appreciate your comments, your insights. Darin Newsom joining us on Market Plus and on Market to Market this week. Thanks to him. And from all of us here on Market to Market thank you for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news