Soybeans Working On A Low?

May 15, 2012 02:01 AM

What Traders are Talking About:


* Soybean pullback complete? Soybean futures posted sharp losses Monday to extend the recent price pullback. But the market rebounded sharply overnight, which is likely trigger some talk that a short-term low has been posted. From a technical perspective, soybean futures are at a critical juncture as most contracts have completed (or nearly completed) a 38% retracement of the rally from the December low. That suggests the pullback, while sharp, is still a correction in a bull market. Further selling, however, would signal the move lower in more than a correction. Funds may hold they key, as they have been the catalyst on the sharp price pullback. In the past six trading sessions, funds have sold 32,000 contracts (160 million bu.) of soybeans.

The long and short of it: Market fundamentals haven't weakened on the move lower in soybeans, they have improved. That suggests buyers will eventually return once there are signs a short-term low has been posted. That may have come overnight.

* Euro-zone avoids recession -- for now. While other signs point to recession in the euro-zone, first quarter GDP came in flat (0%), besetting economists expectations and signaling the bloc isn't yet in a technical recession. Stronger-than-expected economic growth in Germany (+0.5% GDP) during the first quarter saved the region's bacon, as Italy (-0.8% GDP) and Spain (-0.3% GDP) recessed, while France's economic growth was flat (0% GDP). But while German economic growth surprised, business sentiment plunged in May compared to April -- likely due to recent elections in Greece and France.

The long and short of it: This could be the calm before the storm as the euro-zone's problems are unlikely to go away anytime soon. But for now, first quarter GDP data is enough to let the broad-based risk aversion that gripped markets Monday ease.

* ICE grain trade limps out of the starting block. The first day of electronic grain trading at the IntercontinentalExchange (ICE) saw corn volume hit 545 contracts, while soybeans and wheat saw even lighter trade. For comparison, corn volume at the Chicago Board of Trade (CBOT) yesterday was nearly 400 times as large. While ICE grain trading volume is likely to grow, it appears there is no immediate threat to CBOT grain trade. Meanwhile, there appears to be some debate at the Commodity Futures Trading Commission (CFTC) about whether to push back the planned start of 22-hour electronic grain trading at the CBOT to allow for a 30-day public comment period on the situation. CFTC's decision on the matter is expected to come Wednesday. Unless CFTC rules to push back the start, 22-hour electronic grain trading at CBOT will start next Monday.

The long and short of it: Until there's much stronger volume in ICE grains, liquidity will be a concern and trade will be more of a novelty than a threat to CBOT grains.


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