Today, December Bean Oil closed at 52.61, down 1.14 on the day. The last few weeks have certainly been interesting in this market. You may notice that the market was holding along the 50-day moving average (green, 49.50 today) since May 30th. Until Friday, June 13th, when prices went limit up on a “surprise” report from the EPA. I put that in quotations because I don’t think it was really a surprise. Traders have expected the EPA to change the volume obligations for US BioDiesel production, for some time. And I think that most expected them to be higher, as well.
What WAS a surprise is that the data was released just minutes before the 8:30 open on that Friday. Prices locked limit up that day, and extended the following Monday, leaving a huge gap in the chart. That’s denoted by the blue dotted line at 51.19.
Beyond the first two days, the market has been unable to sustain the pace of gains and the prices have been settling back some. Today, the 10-day moving average held as support (red, 52.61) but the 5-day is hooking lower and is above the market (blue, 54.44) Today’s trade saw prices leave another gap to Monday’s low at 53.62. Much of the weakness from this week has been attributed to the epic slide in Crude Oil prices. That does have some bearing on Bean Oil prices, but I’m not sure that’s the primary driver.
My interpretation of that is they want to nearly double the production from 2023 by next year, 2026. That equals more Bean Oil demand, more Soybeans consumed and more Soymeal produced. In the long run, I would expect that to be bullish for Bean Oil prices and bearish for Soymeal. From my point of view, I think the market went “too far, too fast” with the two limit-up days.
Aggressive and well-margined traders may do well to consider establishing long futures positions near that lower gap at 51.19. I’m not certain what your risk-tolerance might be, so you may want to have a protective stop below that 50-day average or consider using put options to manage the price risk. Notice that I said options, plural, as experience tells me that simply matching your futures position size won’t be effective. Less aggressive traders that prefer options, may do well to consider buying December Call options, should that downside gap get filled. Based on where prices are now, I would suggest the 58.00 December Calls, pegging a target in the futures price above the July 2023 high (see the weekly chart below)
December Soybean Oil (Weekly)
This weekly December Bean Oil chart seems to indicate that this market is trending higher. This view goes back a little over 2 years. You might notice that since setting the contract low last August, prices have been in a choppy uptrend. The rally last week even filled a couple of price gaps that were left on the weekly chart way back in September of 2023. There is now a gap below the market (horizontal blue dotted line) from 2 weeks ago, at 51.19. Will it take years to fill in that gap, too? Only time will tell, but given the volatility that has shown up somewhat recently in many outside markets, I’m not sure it will take that long.
The 5- and 10-week moving averages (blue and red, 50.94 and 50.13, respectively) have been in a bullish pattern since early April and I currently see no technical signs of that changing. The 100-week moving average (grey, 46.18) is well below the market and has not been tested since early April, as well. There’s still a slight declination to that average, but it has flattened significantly, to my eye. The 50-week average (green, 44.69) is much further lower.
That average does appear to be inclined and pointing higher. Stochastics (bottom subgraph) are correcting from an overbought condition that’s been seen for the past two weeks. I do like this market from the “long side” but may prefer to establish new positions down near the gap level (51.19) or even near the 5- or 10-week moving averages.
