By Todd Hultman
DTN Lead Analyst
In the soy complex, 2012 marked a watershed moment for soybeans' two products, meal and bean oil. The drought of 2012 took December soybean meal prices up over 70% at one point, reaching a high of $541.80 in September.
December soybean oil, on the other hand, could only manage an 11% gain to a high of 58.60 cents -- not even as high as oil traded in 2011. Both soy products have traded lower since 2012, but world demand clearly favored soybean meal as meal prices did a better job of preserving their gains of the past two decades.
As of Thursday's close, December soybean meal at $303.10 is near its lowest prices in nine years while December soybean oil at 29.80 cents is near its lowest prices in 13 years. Clearly, soybean oil prices have struggled more the past seven years, and things were looking especially bearish a year ago.
One of the challenges of being a soybean product with lesser demand is that soybean oil has not been in charge of its own supply. With a prospering world clamoring for the protein in meal and willing to reward soybean crushers, soybean oil got produced, wanted or not.
India, long-being the world's top importer of soybean oil and biodiesel demand, offered some help, but for a while, U.S. soybean oil stocks kept climbing and hit a high of 2.32 billion pounds at the end of April 2018. December soybean oil prices tried to stay above 30 cents, but couldn't do so and fell back to the upper-20s by fall.
Noncommercial traders (speculators) have never been shy about taking advantage of soybean oil's bearish outlook, but their sense of timing has not been good. Noncommercials tried to go short three times in the past year and a half, and each time prices found surprisingly firm support near 27 cents a pound, very close to 13-year lows.
This week, rumors have been circulating that the Trump administration may be planning to promote biofuels, but nothing has been confirmed yet. On Monday, DTN's Todd Neeley reported that the National Biodiesel Board and the American Soybean Association were having a difficult time getting a meeting with U.S. Commerce Secretary Wilbur Ross since the Commerce department announced in July that they were planning to scale back duties on U.S. biodiesel imports.
See "Biodiesel Industry Wants Meeting..." at:
https://www.dtnpf.com/…
Overall, the news for soybean oil this week was not especially bullish, but on Thursday, December soybean oil outperformed a sleepy grain sector and closed up 0.68 cent at 29.89 cents, finishing near its highest prices in six months. December soybean meal, on the other hand, was down $2.70.
It could be said that last weekend's winter storm in the western Canadian Prairies gave soybean oil prices a lift as some canola crops were lost. But an even more bullish factor was quietly disclosed on Monday afternoon when most of our attention was on the Crop Progress report.
On Monday, NASS reported U.S. soybean oil stocks at the end of August fell to 1.44 billion pounds, the lowest in at least three years and down 38% from the bloated total witnessed a year and a half ago. Without much fanfare, soybean oil's low prices have been generating demand.
A look at USDA's World Markets and Trade report for oilseeds in September shows USDA expects world demand for soybean oil to increase by 3.1% in 2019-20, compared to 2.4% for soybean meal.
The top three importers of soybean oil in 2019-20 are expected to be India, China and Bangladesh. USDA expects a 6% increase in bean oil imports for India and a whopping 47% increase for China. Here in the U.S., the new 2019-20 season just started Oct. 1 and so far, U.S. soybean oil exports are down 6% from a year ago at this time.
Technically speaking, the monthly chart of December soybean oil has turned unusually quiet, and the monthly stochastic is showing a bullish change in momentum.
On a daily chart, December soybean oil has been trading above its 100-day average for most of the past two months. A close above 30.50 cents -- if it happened -- would confirm the bullish change in trend with a new six-month high.
For several years, soybean oil has been the poster child for a bearish market in the grain sector, but slowly and quietly, the fundamentals are improving for this edible oil. With stubborn support at 27 cents, soybean oil prices look poised to trade higher.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at todd.hultman@dtn.com
Follow him on Twitter @ToddHultman
(BE/BAS)
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