CIS and the Asian Crisis...

Following record high corn and wheat prices in 1996 and strong soybeans in 1997, most expected bull markets to continue. However, CIS began to question this conventional wisdom as early as November 1997. The following excerpts were taken from issues of Price Perceptions and Grain Insight during that time period. Just click any number on the chart!

   

1. 11/01/97 “To stabilize currencies, the International Monetary Fund offered emergency loans in return for the promise of tighter fiscal policy and higher interest rates. While this combination is the standard prescription for currency stabilization, it comes at the cost of extremely high interest rates and economic deprivation. This will slow growth in the region and possibly reduce grain imports.”

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1. 11/01/97 “Late this week, the Brazilian real came under intense pressure. If Brazil is unable to hold the real steady, the government will be forced to let it float. This would immediately reduce the price of new crop soybeans to world buyers. If this occurs it would be extremely negative to soybeans and product futures for delivery beginning next May. We are moving to a cautiously negative price outlook for May and later soybean futures.”

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2. 12/20/97 “Lack of confidence in the world’s second largest economy (Japan) is spilling over into world markets. When markets suffer a loss in confidence, long term fundamentals and technical indicators have little bearing on price. Users buy only as needs dictate and willingness to buy ahead becomes nearly non-existent.”

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3. 01/24/98 “Although Federal Reserve and Treasury officials tell us Asia’s problems are only a ‘blip’ in the overall scheme of things... the marketplace is telling us otherwise! The combination of slowing old crop demand and prospects of a return to surplus in 1998-99 is expected to pressure soybean futures. Crop trouble will be required in the US to hold November futures above $6.00.”

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4. 02/07/98 “There appears to be general belief that the Asian crisis is over and recovery is just around the corner. However, there is little evidence at this time to support that belief. It appears that farmers and livestock producers have increased production for a market that no longer exists.”

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5. 03/07/98 “If US farmers plant record acres to soybeans this spring, a surplus of historic proportions is possible during the 1998-99 crop year.”

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6. 03/21/98 “Governments altered trade policies and changed farm programs to meet growing demand. However, the bubble burst last fall when it became apparent that growth had been a function of overextended credit. Based on the foregoing analysis, we expect November soybean futures to test the $5.00 area.” (Special Soybean Report entitled: Producing for a Market that Doesn’t Exist!)

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7. 05/06/98 Bear Market Rally! “Nearly every year, grain and oilseed markets experience one or more crop scares during the planting and growing season. Technical indicators confirm a crop scare rally is in progress. However, long term fundamentals remain quite negative and the current rally should prove to be nothing more than a bear market rally.”

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8. 06/01/98 Summer Crop Scares... “Whether crop conditions are favorable or unfavorable, summer highs in corn and soybeans are likely to occur in early July.”

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9. 06/27/98 “Buying a rally in anticipation of drought normally leads to disappointment at this time of year. At this time, there is no reasonable indication that production will fall by the degree needed to hold November futures above the $6.30 level. We continue to advise utilizing crop scare rallies to initiate short positions.”

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10. 07/01/98 Summer Rally Over? “If crop problems fail to materialize by the third week of July, both corn and soybeans will be required to seek a value that reflects lack of demand and potential surplus.”

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11. 07/11/98 “If the worst case scenario occurs (based on crop conditions), a crop of 2652 million is indicated. However, it would still exceed the USDA’s latest demand estimates for both this season and next.”

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12. 07/28/98 Negative News Continues... “The US must begin to find a home for the prospective surplus of grains and soybeans. Minor rallies should continue to be sold in grains and soybeans.”

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13. 09/01/98 Enough for Now! “Near term risk appears to be increasing for those holding short positions. We advise giving the marketplace a ‘breather’ (reducing short positions).”

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14. 09/12/98 “Farmers may elect to store early harvested beans and take government deficiency payments in hopes of better prices next year. If this occurs, futures could experience a counter seasonal rally into fall, followed by ultimate lows in late winter. We advise waiting for a rally in January futures toward the $5.60 area before initiating or adding to short positions.”

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Our research is geared toward long term moves. By analyzing ongoing events as they relate to our forecast, CIS provides traders with a continued flow of information and analysis, helping to maintain the level of confidence required to capitalize on major price moves.
 
 
TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
November 1998 Soybeans
©2013 CQG, Inc.
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