09-15-2018: December Soybean Oil: Finding Other Markets

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

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Introduction

This is one of the rare instances where we go against the bulk of technical indicators out there and the trend may not be your friend. There are reasons to believe the soyoil market is oversold and is finding other outlets for exports, largely due to current low prices making the U.S. more competitive. Also there are factors emerging that could dent the rosy picture for crop output, especially weather-related. Also, soybean oil futures tend to be reactive, and the market appears to be oversold. The reason for the unprecedented decline in the soybean complex prices is pretty much fingered on President Trump's insane foreign policies that are shaking up global economics, and not for the good of all except a few special interests. But Trump cannot completely control global economics. as the U.S. becomes more competitive in certain agricultural products with prices collapsing here and rising in other countries. At some point reality has to take over. The export demand for U.S. soybean products is on the rise worldwide except in China. China is, of course, hugely important, but it is getting U.S. soybeans from other countries in a roundabout way to avoid tariff hindrances. One reservation about soyoil futures prices is the fact that other countries are buying the U.S. soybeans but doing the processing of it into soyoil. Still, pricewise, what goes for soybean crops often correlates with crush product prices, at least in the longer term.


Intermarket Analysis

We fed Soybean OIl, Soybeans, and Soybean Meal into a neural network to get the following result:




Parabolic Chart

December Soybean Oil:

Parabolic Chart


Nirvana Chart

December Soybean Oil:

Initial Chart


News Analysis

Soybeans, crushed to make cooking oil and the protein-rich animal feed ingredient soymeal, were the biggest U.S. agricultural export to China last year at a value of $12.3 billion, according to the U.S.D.A. South American export supplies are expected to be down sizeably from a year earlier in the next six months, and China will face very tight domestic soybean supplies unless it resumes large-scale purchases of U.S. soybeans. The South American supply shortage will make it necessary for China to import 15 million tonnes of U.S. soybeans in October 2018/March 2019 even if the current trade war is not resolved. China is the world's largest soybean importer. Chinese purchases of U.S. soybeans could re-start in coming weeks. Even if China goes to Argentina for purchases of crushed products, a lack of soybean supplies in Argentina could mean that China could still end up with U.S. soybeans that have been processed in Argentina. Argentina is likely to raise imports of U.S. soybeans.

China has made retalliatory tariffs on U.S. soybeans in July. But that triggered a wave of bargain shopping on cheap U.S. supplies by importers in other countries. Chinese buyers have so far this year accounted for just 17% of all advanced purchases of fall U.S. soybean harvest, down from an average of 60% over the past decade. They are instead loading up on Brazilian soybeans, which sell at a premium of up to $1.50/bushel as U.S. soybean futures have fallen 17% over six weeks, their lowest level in nearly a decade. THe price gap has sparked a run on U.S. soybeans by importers from Mexico to Pakistan to Thailand, according to USDA data. All importers advanced purchases of the next U.S. soybean crop shot up 127% in June at 8 million toones, compared to the same period last year. The purchases are the latest example of how politics are upending billions of dollars in global trade flows as U.S. President Trump fights a trade war with China.

Even Brazil, the world's top soybean exporter, is prepping for major purchases of U.S. soybeans to feed its domestic processors as it diverts more of its own crops to China at premium prices. Brazil may import up to a million tonnes of U.S. soybeans, ramping up in October. Brazilian soy processors turn the crop into cooking oil and animal feed.

Grains merchants like Archer Daniels Midland, Bunge, and Cargill are working to minimize the impact of the sudden drop in Chinese demand by diverting cargoes elsewhere. Advanced purchases from other sources at 3.9 million tonnes are about 1 million tonnes above normal.

In a recent report, the USDA said 71% of the soybean crop is "good to excellent." This was above market forecasts and pressured prices downward. Expectations that Beijing's extra 25% tariff on U.S. soybeans will shift more sales to Brazil. The USDA is expected to begin cutting forecasts for U.S. soy exports and increasing projected stockpiles.

Farmers apparently are making a profit on soybeans despite lower prices. Better than average yields for the sixth straight year in a row mean low prices, pretty much regardless of whether China blinks and removes tariffs on U.S. imports. Most growers got sales on the books before prices crashed.

The other crop coming from South America will not supplant U.S. soybeans to many destinations because so much of Brazil's production will go to China. Other buyers will need U.S. soybeans longer into the selling season, making it possibly advisable to consider long-term storage. U.S. soybeans are cheap compared to those out of Brazil. Shipments formerly destined for China are being shifted to South Korea.

There may be some crop price impact as the result of Hurricane Florence.

There is a carryover level of 845 million bushels or soybeans in the latest WASDE crop report, which is an all-time high coupled with the fact that we may produce another 4.7 billion bushels, another record. This leaves a lot of room to run to the downside as one analyst predicts $7.50 soybeans at the end of the year. This spills over into corn and soybean oil which are trending lower.

Any trade talks will be an important friendly factor for soyoil over the next few weeks.

Small producers of ethanol, a competing use for soybeans, are extremely mad at Trump's policies as these producers are less equipped to weather through tough times. U.S. exports of ethanol were cut off due to trade disputes. This reduces demand for soy products related to ethanol.

The way we read this news is bullish because the U.S. is finding other markets for soy products exports. Hurricane Florence will impact soybean crops. Oil and gasoline prices are rising lately which will eventually translate to increased use of soy products to produce ethanol. The market is extremely oversold.


Point & Figure Chart

 42.0I                                                                  T  9/13
     I CBT - Dec-18 Soybean Oil, 60000lbs, $/clb   Cm.=0.05  Lim.= 1.8
     I
     I                                      X
     I                                      XO
 40.5I______________________________________XO_________________________________
     I                                      XO
     I                                      XO
     I                                      XO
     I                  X                   XOX
 39.0I________________X_XO______________X___XOXO_______________________________
     I                XOXO              XO  XOXO
     I              X XOXO              XOX XOXO
     I              XOXOXO              XOXOXOXO
     I              XOXO O              XOXOXOXO
 37.5I______________XO___O________X_____XO_OXOXO_______________________________
     I              X    OX       XO    X  OXO OX               X
     I        X     X    OXO      XO  X X  OX  OXO              XO
     I        XO    X    OXOX     XO  XOX  O   OXOX         X   XOX
     I        XO  X X    OXOXO    XOX XOX      OXOXO        XOX XOXO
 36.0I________XO__XOX____OXOXO____XOXOXOX______O_OXO________XOXOXOXO___________
     I        XO  XOX    O OXO    XOXOXO         OXOX       XOXOXOXO
     I        XO  XOX      OXO    XO OX          OXOXO      XOXOXOXO
     I        XOX XOX      OXOX   X  OX          OXOXO    X XO OXOXO
     I        XOXOXOX      OXOXO  X  OX          OXOXOX X XOX  OXOXO
 34.5I________XOXOXO_______O_OXO__X__O___________O_OXOXOXOXOX__O_OXO___________
     I        XO OX          O OX X                OXOXOXOXOX    OXO
     I    X   X  OX            OXOX                O OXOXOXO     O O
     I    XO  X  OX            OXOX                  OXOXOX        OX
     I    XOX X  O             OXOX                  OXOXO         OXOX
 33.0I____XOXOX________________O_OX__________________O_OX__________OXOXO_______
     IX   XOXOX                  O                     O           OXOXO
     IXO  XO OX                                                    O O OX
     IXO  X  OX                                                        OXO
     IXOX X  OX                                                        OXO
 31.5IXOXOX__O_________________________________________________________OXO_____
     IXOXOX                                                            OXO
     IXO OX                                                            O O
     IX  O                                                               O
     I                                                                   O
 30.0I___________________________________________________________________O_____
     I                                                                   OX
     I                                                                   OXO
     I                                                                   OXO
     I                                                                   OXOX
 28.5I___________________________________________________________________O_OXO_
     I                                                                     OXO
     I                                                                     O O
     I
     I
 27.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
           111111                       111111                    11
       99990111221123334445566777788999901111211222333456667788889012344566779
       01122002020120231120101001202011210112011012022220220001121112000102031
      024856553714939412926215112535639701111813248714459095510011346934150202
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Soybean Oil (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $600. Initial margin on a single contract is $880. Use of options is not advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent at a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Soybean Oil March 27 Put and Sell (1) Soybean Oil March 28.5 Put @ 0.67 to the sell side or greater.


o 1 o 2 o 3 o 4 o 5


Calendar Spread

What the Dec. - May calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. This disagrees with our ultimate conclusion. The best time to enter or leave the above spread is when it is at -0.60 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be nearing the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.
 37.0|                                                                  T  9/13
 CBT - Dec-18 Soybean Oil, 60000lbs, $/clb   Cm.=0.05  Lim.= 1.8
     |AEE
     |AADDDEEE
     |AAAADDDDDE
 36.0|AAAAADDDDDDDDEEE_________________________________________________________
     |AAAACCDDDDDDDEEEE
     |AAACCCDDDDEEEEEEFF
     |AAACCEEEEEFFF
     |AACEEFFFFF
 35.0|ACCCCEFFFFFFF____________________________________________________________
     |ABCCCCCFFFFFHH
     |ABBCCCCCCFFFGGGGHJ
     |BBBBBBCCFFGGGGGGGHJJJ
     |BBBBBBCFGGGGGGGGHHHJ
 34.0|BBBBBBGGGGGGHHHJJKLL_____________________________________________________
     |BBHHHHHJKKKKLLM
     |BBHHJKKKKKKKLLMM
     |JKKKKKKLLLMMMMMMO
     |JJKLLLMMMMMMMMMNOOOO
 33.0|JJKLLMMMMMMMNNNNOOOOO____________________________________________________
     |LLLLLMMNNNNNNNOOOOOO
     |LLLLLNNNNNNOOOOOOPPPP
     |LLLNNNOOOOOOPPPPPPPS
     |LOOOOOPPPPPQQSSSS
 32.0|PPPQQRSSSSST_____________________________________________________________
     |QQQRRRSSSSSSST
     |QQQRRRRRSSSST
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 31.0|QQRTTT___________________________________________________________________
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 30.0|UUU______________________________________________________________________
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 29.0|UVXXX____________________________________________________________________
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     |VVWWWWWWXXYYYYYYYZZZ
 28.0|VVWWWWWYYYZZ_____________________________________________________________
     |VW[[
     |V[[
     |   <<<
     |
 27.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.000
           1 1 1 1 1 1                                                
       9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 6 7 7 8 8 9           9
       1 2 1 2 0 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 2 1 3 1 2 1           1
       4 7 1 5 8 2 7 1 8 3 6 1 7 1 5 9 3 7 1 5 9 6 0 3 7 2           3


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 9/13 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 BOZ8    December Soybean Oil

                      High Price:  29.05
                   Current Price:  27.79
                       Low Price:  27.17

                            Risk:  0.044
                     Opportunity:  0.090

                    (O/R) Ratio =  2.032


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart + 1
News + 1
Point & Figure - 1
Cyclicals + 1
Seasonals + 1
Internal System 1 + 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total + 2
Place 17 December Soybean Oil on a Buy Watch with stoploss @ -1.62 below the get-in point when recent price is represented as "27.80".
____________________________________________________________________________________________________________________________________________W.G.