Bonds On Fire--Here's Why

Futures managed a new contract low in overnight trade so the higher close on the session represents a reversal and could attract some additional technical buying support tomorrow. The USDA pegged ending stocks for the 2004/2005 season at 2.01 billion bushels as compared with the average trade estimate of 2.042 billion bushels (range 1985-2210). Exports were revised lower by 50 million bushels but traders were looking for deeper demand cuts and higher stocks. World corn ending stocks for the 2004/2005 season were revised higher to 117.27 million tons from 114.96 last month and 97.67 million tons last year. Argentina production was revised higher by 500,000 tons. Gulf basis levels were higher this morning which provided some support. Weekly export sales, released before the opening, are expected to come in near 400,000-600,000 tons from 337,600 tons last week. Support for March corn comes in at 194 1/2 and 191 with resistance at 196 1/2 and 197 1/2.

Technical Outlook

CORN (MAR) 02/10/2005: The daily stochastics have crossed over down which is a bearish indication. Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market back below the 18-day moving average suggests the longer-term trend could be turning down. The market tilt is slightly negative with the close under the pivot. The next downside target is now at 194. The next area of resistance is around 195 1/2 and 196 1/4, while 1st support hits today at 194 1/2 and below there at 194.

SOY COMPLEX RECAP

2/9/2005

March Soybeans finished up 7 1/4 at 510 3/4, 1 1/4 off the high and 7 1/4 up from the low. May Soybeans closed up 4 3/4 at 511 1/4. This was 6 3/4 up from the low and 1/4 off the high.

March Soymeal closed up 2.8 at 153.3. This was 3.1 up from the low and 0.2 off the high.

March Soybean Oil finished down 0.02 at 19.15, 0.1 off the high and 0.08 up from the low.

Short-covering of part of the record net short position of the speculator helped support the early gains in spite of the lower opening call. Funds are caught holding a massive net short position in the March contract and the process of rolling this short position to May helped drive March soybeans moderately higher. The USDA pegged ending stocks at 440 million bushels as compared with the average trade estimate of 439 million bushels (range 420-465). This was up from 435 million bushels last month. World ending stocks for the 2004/2005 season were pegged at 61.35 million tons from 60.80 last month, 38.86 million last year and 40.67 million (previous record high) two years ago. While Brazil crop production was revised lower to 63 million tons, down 1.5 million from last month, world demand was revised lower by more than 2 million tons. The market needed bullish news to turn the trend and did not receive this type of news for this report. The USDA revised crush lower by 5 million bushels as meal domestic usage was revised lower by 200,000 tons. Weekly export sales, released before the opening, are expected to come in near 300,000-500,000 tons for soybeans, 50,000-100,000 tons for meal and 5,000-10,000 tons for oil. Resistance for March soybeans comes in at 514 and 517 3/4 with support at 503 and 501.

Technical Outlook

BEANS (MAR) 02/10/2005: Daily stochastics are showing positive momentum from oversold levels, which should reinforce a move higher if near term resistance is taken out. The major trend has turned down with the cross over back below the 18-day moving average. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next upside target is 517 3/4. The next area of resistance is around 515 and 517 3/4, while 1st support hits today at 506 1/2 and below there at 500 3/4.

MEAL (MAR) 02/10/2005: Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. The market back below the 18-day moving average suggests the longer-term trend could be turning down. The market's close above the 2nd swing resistance number is a bullish indication. The near-term upside target is at 155.8. The next area of resistance is around 154.9 and 155.8, while 1st support hits today at 151.7 and below there at 149.3.

BEANOIL (MAR) 02/10/2005: Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. The major trend has turned down with the cross over back below the 18-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The near-term upside target is at 19.33. The next area of resistance is around 19.24 and 19.33, while 1st support hits today at 19.06 and below there at 18.98.

WHEAT MARKET RECAP

2/9/2005

March Wheat finished down 1 3/4 at 290, 3 3/4 off the high and 1/2 up from the low. May Wheat closed down 1 1/2 at 299. This was 1 1/4 up from the low and 2 off the high.

The market found support from short-covering after the USDA report showed a larger than expected drop in stocks and firm demand for US wheat. However, the lower close in the face of bullish fundamental news indicates that the lack of a weather problem and expectations for stiff world competition for the export market to continue. The USDA pegged ending stocks for wheat at 558 million bushels as compared with 583 million last month and trade expectations which averaged 581 million (range 553-633). Exports were revised higher in spite of fears of increased competition on the world market. The news is supportive and given the record speculative net short position, active short-covering is possible if resistance levels are violated. Soft red ending stocks were revised higher to 79 million bushels, up 4 million from last month while hard red winter was revised 12 million lower to 193 million and spring wheat down 15 million to 151 million bushels. As a result, Minneapolis and Kansas City wheat led the market higher. World ending stocks were left near unchanged as a 1.3 million ton increase in world production was absorbed by a similar revision higher in world consumption. Weekly export sales, released before the opening, are expected to come in near 250,000-350,000 tons from 710,300 tons last week. March wheat support comes in at 290 and 287 with resistance at 292 1/2 and 294 1/2.

Technical Outlook

WHEAT (MAR) 02/10/2005: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. The close under the 18-day moving average indicates the longer-term trend could be turning down. It is a slightly negative indicator that the close was under the swing pivot. The near-term upside target is at 295. The next area of resistance is around 292 and 295, while 1st support hits today at 288 and below there at 286 3/4.

LIVE CATTLE RECAP

2/9/2005

April Live Cattle finished down 0.67 at 88.12, 0.72 off the high and 0.02 up from the low.

March Feeder Cattle closed up 0.02 at 100.92. This was 0.12 up from the low and 0.32 off the high.

April cattle pushed moderately lower on the session following yesterday's weak close. A lack of trade in the cash markets with bids at only $87 this week from $91.00 last week helped trigger another round of long liquidation selling. While profit margins have improved, some traders believe that margins were so deep in the red that the improving beef price will not have a significant impact on packer demand. Boxed beef cutout values were up $.31 into the mid-session to $147.59 as compared with $142.59 last week at this time. The higher beef is expected to support better packer demand. Slaughter came in at 116,000 head versus trade guesses ranging from 115,000 to 117,000.

Technical Outlook

CATTLE (APR) 02/10/2005: Positive momentum studies in the neutral zone will tend to reinforce higher price action. The major trend has turned down with the cross over back below the 18-day moving average. The market setup is somewhat negative with the close under the 1st swing support. The next upside target is 89.050. The next area of resistance is around 88.500 and 89.050, while 1st support hits today at 87.770 and below there at 87.570.

LEAN HOGS RECAP

2/9/2005

April Lean Hogs finished down 0.22 at 73.77, 0.72 off the high and 0.07 up from the low.

March Pork Bellies closed up 0.52 at 89.72. This was 0.47 up from the low and 0.02 off the high.

Weakness in the cattle market along with further losses for February futures pulled the hog market lower. April hogs challenged Tuesday's high but weakness in the cash market helped drag the market lower in the end. The February contract is down 655 points from the January 28th highs which helped trigger long liquidation selling in other months with funds holding a hefty net long position. Talk of higher cash trade for next week helped provide some support to April hogs and so did news from the USDA that pork exports for 2005 were revised higher by 140 million pounds from last months forecast and pork production for 2005 was revised lower by 50 million pounds. Slaughter came in at 395,000 head versus trade guesses ranging from 391,000 to 396,000. The CME 2-day lean index for the period ending February 7th came in 71.89, down 97 cents from the previous session and down from 74.86 one week previous.

Technical Outlook

HOGS (APR) 02/10/2005: Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. The close below the 18-day moving average is an indication the longer-term trend has turned down. The market tilt is slightly negative with the close under the pivot. The next upside target is 74.720. The next area of resistance is around 74.150 and 74.720, while 1st support hits today at 73.400 and below there at 73.150.

COCOA MARKET RECAP

2/9/2005

May Cocoa finished down 62 at 1542, 66 off the high and 2 up from the low.

The cocoa market fell sharply and failed at a series of critical support levels on the charts. We suspect that many fund buyers were stopped out of recent long positions and with the May cocoa falling below the 100 day moving average it might be possible to see even more long liquidation. We suspect that the recent rains dampened the supply threat and left the market without the fundamental story to sustain the moderate gains off the January lows.

Technical Outlook

COCOA (MAY) 02/10/2005: The close under the 60-day moving average indicates the longer-term trend could be turning down. A crossover down in the daily stochastics is a bearish signal. Negative momentum studies in the neutral zone will tend to reinforce lower price action. The close under the 18-day moving average indicates the longer-term trend could be turning down. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is 1490. The next area of resistance is around 1576 and 1626, while 1st support hits today at 1508 and below there at 1490.

COFFEE MARKET RECAP

2/9/2005

May Coffee closed up 0.85 at 115.05. This was 1.45 up from the low and 1.35 off the high.

May coffee hit a new contract high and closed moderately higher on the session as trade house buyers were somewhat active and there was a lack of follow-through technical selling after Tuesday's key reversal. The new high negates the reversal and leaves the market in a decisive uptrend. The lack of producer selling on the rally this week helped provide support and there are some traders who believe that producer selling was slow due to holiday in Brazil. NYBOT exchange stocks, released after the close, were down 2.735 bags to 4.51 million bags with 35,730 bags pending review.

Technical Outlook

COFFEE (MAY) 02/10/2005: A new contract high was made on the rally. Rising stochastics at overbought levels warrant some caution for bulls. The cross over and close above the 18-day moving average is an indication the longer-term trend has turned positive. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside objective is 117.80. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 116.45 and 117.80, while 1st support hits today at 113.70 and below there at 112.25.

SUGAR MARKET RECAP

2/9/2005

May Sugar closed up 0.02 at 9.43. This was 0.11 up from the low and 0.03 off the high.

May sugar closed 2 higher on the session and 11 points up from the low as the corrective break during the session was met with solid trade and speculative buying support. Pakistan lifted the 25% import tariff for sugar in an attempt to control a sharp rise in sugar prices and traders expect increased cash dealings over the near-term. India and Indonesia could also be buyers. The USDA Supply/demand report showed a slight downward revision in US sugar production which pushed ending stocks forecast down to 1.548 million tons from 1.574 million last month, 1.897 million last year and 1.67 million tons two years ago. Cuba could import more sugar over the near-term as supplies are too tight after the worst drought in 64 years in 2004.

Technical Outlook

SUGAR (MAY) 02/10/2005: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The cross over and close above the 18-day moving average is an indication the longer-term trend has turned positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside objective is now at 9.27. The next area of resistance is around 9.50 and 9.55, while 1st support hits today at 9.36 and below there at 9.27.

COTTON MARKET RECAP

2/9/2005

May Cotton finished up 0.16 at 44.28, 0.52 off the high and 0.28 up from the low.

May cotton closed slightly higher on the session but more than 50 points off of the highs of the day. The USDA news was considered bullish against trade expectations as China imports were revised higher and US export and domestic usage numbers were also revised higher. US ending stocks were revised lower to 7.3 million bales from 7.7 million last month and 3.51 million tons last year. Exports were revised higher by 300,000 bales and domestic usage up 100,000 bales from last months forecast. Weekly export sales, released before the opening, are expected to come in near 300,000-400,000 bales from 406,800 bales last week.

Technical Outlook

COTTON (MAY) 02/10/2005: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The close under the 18-day moving average indicates the longer-term trend could be turning down. The daily closing price reversal up is a positive indicator that could support higher prices. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is 43.54. The next area of resistance is around 44.68 and 45.14, while 1st support hits today at 43.88 and below there at 43.54.