02-11-2018: March Soybean Oil: Burdensome Supply

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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

5

146

2

03
1


Introduction

Plenty of soybeans appear to be ready for export from South America, with high yields due to favorable weather there. The U.S. has a burdensome supply of soybean products on hand, including soy oil as our government seems to refuse to extend certain policies encouraging the use of biofuels to reduce air pollution. A strong U.S. Dollar due to risiing interest rate prospects also isn't helping exporters where shipments are weak.


Intermarket Analysis

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




Parabolic Chart

March Soybean Oil:

Parabolic Chart


Nirvana Chart

March Soybean Oil:

Initial Chart


News Analysis

The supply outlook for the soybean complex is burdensome. Soybean product buyers are mainly turning to South America. Weather in Argentina has reduced crop size there, but insufficiently to affect exports very much, as the Argentine soybean production estimate from the Beunos Aires Grains Exchange was lowed to 50.0 million tonnes from 51.0 million tonnes. The USDA estimate for the same figure is 54.0 million tonnes. Soybean meal leads in strength in the crush, but Argentina's crush industry has slowed considerably with cash soybean meal offers in Argentina hard to find. U.S. end users were lined up to buy a break on a bearish report but so far there were no sellers. March soybean oil continues to unravel after lawmakers agreed to extend the biodiesel tax credit for 2017 only and not into 2018 as well. The February USDA Supply & Demand report was considered bearish with the U.S. ending stocks coming in at 530 million bushels of soybeans versus the average estimate of 499 million bushels (somehwere between 455-540) and compared to 470 million last month.

Big harvests in both South America and the U.S. are pressuring the soybean complex as a whole. Soybean futures have greatly increased volatility as the U.S. forecast its exports falling at the fastest rate in six years. The ending stocks estimate for U.S. stocks was far more than investors had expected. The carryout would be at an 11 year high. Export estimates from the U.S. were upgraded 60 million bushels to 2.10 billion bushels. The market had expected at worst a 486 million bushel upgrade. Larger supplies from Brazil were also increasing export competition. Favorable weather throughout Brazil raised yield prospects.

China has been buying from Russia increasingly on stepped up restrictions on GMO's. Tensions between China and the U.S. are not helping exports there. Some also see a pattern of seasonal weakness through February for the soy complex.

A truckers' strike in Argentina may be supportive. Negotiations between government officials and transportation companies are ongoing there.

The USDA estimates net U.S. farm income will have decreased 7% in 2017 to $59.6 billion, the lowest number since 2006. The February World Agricultural Supply and Demand Estimates report (WASDE) showed soybean exports lagging well behind corn exports.

The main focus of attention for soybean oil appears to be weather in South America as the determining factor in immediate prices. Chinese restrictions on U.S. imports there amounted to a loss of $13.9 billion in opportunities.

Top countries to which the U.S. sells soybean oil include Guatemala (9,500 mt), South Korea (4,900 mt), Mexico (3,500 mt), the Dominican Republic (5,400 mt) and Jamaica (3,500 mt). In general, South Korea over time is the U.S.' largest customer for soybean oil exports.

A rising U.S. Dollar as a result of inflation, higher interest rates, and equity prospects will also put pressure on soybean oil exports.

In India, consumers will have to pay 5 to 6% more for edible oils following an increase in import duty there. The total Indian import duty on crude soybean oil has reached 30% there. In the early 1990's India used to meet more than 90% of its edible oil requirement through domestic production. That declined to 30% over the years due to declining import duty which is now being reversed. The largest importer of soybean oil in 2015-16 accounted for 30% of global shipments into the country.


Point & Figure Chart

 54.0I                                                                  T  2/ 8
     I CBT - Mar-18 Soybean Oil, 60000lbs, $/clb   Cm.=0.05  Lim.= 1.8
     I
     I
     I
 51.5I_________________________________________________________________________
     IO
     IO
     IO
     IO
 49.0IO________________________________________________________________________
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     IOX
     IOXO
     IOXO
 46.5IOXO______________________________________________________________________
     IOXO
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     I  O
 44.0I__O______________________________________________________________________
     I  O
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     I  O
 41.5I__O______________________________________________________________________
     I  O
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     I  O    X       X
     I  O    XO      XO                X
 39.0I__OX_X_XOX_____XO________________XO______________________________________
     I  OXOXOXOXO    XO                XO
     I  OXOXOXOXOX X XO        X       XO
     I  OXO OXOXOXOXOXO        XO    X XOX
     I  O   O OXOXOXOXO        XO    XOXOXO
 36.5I________O_OXOXO_O________XO____XOXOXO____________________________________
     I          OXOX  O        XO  X XOXO O
     I          OXOX  O    X   XO  XOXO   O        X
     I          OXO   O    XOX XOX XOX    OX     X XOX
     I          O     O    XOXOXOXOXOX    OXOX   XOXOXO
 34.0I________________O____XOXOXOXOXOX____OXOXO__XOXOXO________________________
     I                O    XOXO O OXO     O OXOX XO OXO
     I                O    XOX    OX        O OXOX  O O
     I                O  X XO     OX          OXOX    O
     I                O  XOX      OX          O O
 31.5I________________OX_XOX______O____________________________________________
     I                OXOXOX
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 29.0I_________________________________________________________________________
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 26.5I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
           11111         1111         111            11
      4669900012123455689011213346689911211233355688902
      2131201202200122121012120120200212212212203112220
      1805265959255629181505581178491043026833750653635
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a weak seasonal down 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 buy 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 $727. Use of options is not advised.


Historic Range

Scale trade buyers are entering the market for the long term 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. Commercials with the best track record are remaining 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 34.5 Call and Sell (1) Soybean Oil 33.0 Call @ 0.43 to the sell side or better.


o 1 o 2 o 5


Calendar Spread

What the Mar. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at +0.03 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.75 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be near the buy the near, sell the far point.





Level Table:

Level Table

The path of least resistance is down.
 37.0|                                                                  T  2/ 8
 CBT - Mar-18 Soybean Oil, 60000lbs, $/clb   Cm.=0.05  Lim.= 1.8
     |
     |
     |
 36.5|_________________________________________________________________________
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     |APP
 36.0|AAPPPPP__________________________________________________________________
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     |AABBBBBMMMNOOOOPPPPPPQQTTUU
     |AAABBBBBBMMMNOOOOOPPPPPQQQTTTTTU
     |AAABBBBBBMMMNOOOOPPPPQQQQTTTTTTU
     |AABBBBBBMMMNOOOOPPPPQQQQQTTTTTTTUUU
 35.0|ABBBBMMMNOOPPPQQQQQTTTTTTTTUUU___________________________________________
     |AABBBBBCMMMNOPPQQQQSSSTTTTTTTTUUUU
     |AABBBBCMMMMNNNNOOPQQQQSSSTTTTTTUUUU
     |ABBBCLMMMMMMNNNNNNOPQQQQSSSSTTTTTUUUUUV
     |ABBBBCLMMMMMMMNNNNNNOOQQQSSSSTTTUUUUUUUV
 34.5|ABBBBCCLLLMMMMMMMNNNNNNOOQQQSSSUUUUUUV___________________________________
     |AABBBBCCLLLMMMMMMMNNNNNNNOOOQQSSUUUUUVV
     |AAABBCCLLLLMMMMMMNNNNNNNOOQQSSUUUUUVVV
     |AAABBCCCCDKLLLLLLMMMMMNNNNNNNOOQQSUUVVVVV
     |AAAABBCCCCDFGHKLLLLLLLLMMMNNNNNOOQSSSSUVVVVVV
 34.0|AAABBCCCDFGGGHJKLLLLLLLMMNNNNNOQSSSSSUVVVVVVV____________________________
     |AAABCCCCDFGGGGHJJKLLLLLLLMNNNNOOQQSSSSSVVVVVV
     |AABBBCCCCCDFGGGGGGHHJJKLLLLLLLLMNNOOQQSSSSVVVVVWXX
     |ABBBCCCCCDFGGGGGGGHHJJKLLLLLLLMNNOQQRSSSSSVVVVWWWWXX
     |ABBBCCCCCDDFFGGGGGGGHHJJKKLLLLNNOQQRRSSSSSVVVWWWWXXYY
 33.5|ABBCCCCDDDFFFGGGGGHJJJKKLLLLNOOQRRRRRRSSVVVWWWWWXXYY_____________________
     |BCCCCCDDDFFFFGGGGHJJKKLLNOQRRRRRRRRSVVVWWWWWXY
     |BCCCCCDDDDFFFFGGGGGHJJKKKLNORRRRRRRRSVVWWWWWWWXXXY
     |CCCCCDDDDDFFFFFGGGGGHHHJKKKLORRRRRSVVWWWWWWWXXXYZ
     |CCCCDDDFFFFFFGGGGGHHHJJKKKLRRRRRSVWWWWWWXXXYYZZ[
 33.0|CDDDDEFFFFFGGGGHHHJJJKKKLRRRRVWWXXXYZZZZ[________________________________
     |CDDDDDDEEEFFFFFHHJJJJJKKKKKLRRRWXXXYZZZZ[
     |CDDDDDDEEEFFFFFFHHJJJJJKKKKKLRRWXXXYZZZZZZ[
     |CDDDDDDEEEEEFFFFFFHHJJJJJKKKKKRRXXYZZZZZZZ[
     |CDDDDDDDEEEEEEFFFFFHJJJJJKKKKRRYZZZZZZZ[[
 32.5|DDDDDDEEEEEEEFFFFFHJJJKKKYYZZZZZZ[[______________________________________
     |DDDDDDEEEEEEEFFFFHHJJKKKKKYYZZZZZ[[
     |DDDDDEEEEEEEFFFHHJJJKKKKYYYZZ[
     |DDEEEEEEEEFHHHJJKKKKYYYY[
     |EEEEEEEHHHJJJKYYY[   <<<
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 31.5|_________________________________________________________________________
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 31.0|-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=-0.340
                                         1 1 1 1 1 1                  
       2 2 3 3 4 4 5 5 6 6 7 7 8 8 8 9 9 0 0 1 1 2 2 1 1 2           2
       1 2 1 2 0 2 0 2 0 2 0 1 0 1 3 1 2 1 2 0 2 0 2 0 2 0           0
       0 4 0 4 7 4 8 2 6 0 5 9 2 6 0 4 8 2 6 9 4 8 2 9 4 7           8


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 2/08 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                  BOH8    March Soybean Oil

                      High Price:  33.07
                   Current Price:  32.21
                       Low Price:  30.47

                            Risk: -0.054
                     Opportunity: -0.110

                    (O/R) Ratio =  2.023


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 - 4
Place 20 March Soybean Oil on a Sell Watch with stoploss @ +1.62 above the get-in point when recent price is represented as "32.05".
____________________________________________________________________________________________________________________________________________W.G.