08-29-2017: December Soybean Oil: Picture for Oils Mixed but Pressured by Falling Grain Prices

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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
Calend Spread

Level Table
Other Factors
Recommendation

01

1    2

5          6

3     4


Introduction

Based upon fundamentals, at the start of this review, we thought soybean oil would be a "sell." Two factors stood out, namely a collapse in other "grain" prices including soybean prices, and also a reluctance of the current U.S. administration to support ecological measures and mandates to encourage use of biofuels. In fact, quite the opposite seemed to be in place with the scandal related to Ichan's involvement with the Trump Administration to make recommendations discouraging biofuels use even while Icahn had personal and possibly criminal short positions in markets he was not supposed to influence as a "neutral" government advisor. However, our charts and technical indicators highly favor soybean oil being in a rather strong uptrend over a longer period, with historically higher prices. The technical picture is mixed, however, punctuated by a very "reactive" commodity which seems to give pllenty of opportunity to cycle in and out of "mistakes" when making short-term trades. We would assess soyoil as short-term reactive, long-term moving higher.


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

Strong export sales for soybeans mostly to China is supporting soy oil. Weather is cool and dry in parts of the Midwest not helping soybean yields or harvests there. This is expected to last two more weeks. Disappointing results of crop tours show particular problem in Iowa.

There has been a recent sharp deterioration in the condition of a key producing state of Illinois for soybean crops. Soybeans there are rated only at 60% "good or excellent" conditions, compared to a three-year average of 69%. Wide swings in condition were observed in the Dakotas where there was rain, but drought conditions still exist in Illinois. Crops in India are also suffering from drought. Soybeans grown in sandy fields in Indiana began to whiten in the afternoons from the heat. There has been mounting skepticism over USDA projections for yields in Indiana, Illinois, and Ohio. Yields estimates by private cooperative tours are generally 15% below a year ago. The worst ratings are for South Dakota where 42% of the soybean crop is in good to excellent condition. That however is an improvement of +8% from former projections due toi recent rains.

In Canada canola crop losses due to extreme heat are supportive to soy oil prices. But inventories of palm oil in Malaysia are swelling faster than had been expected.

It appears while grain prices in general are falling, the "oils" are holding out, largely due to an uncertain situation with Canadian canola oil production. For soybean oil, there is a lack of soybean meal demand leading to lower crush and tighter supplies. There is also an uncertain biodiesel policy from the U.S. Government, after a recent scandal involving Trump's appointment, or non-appointment, depending upon which White House news release you want to believe, of Carh Ichan as advisor. Ichan may have violated criminal securities fraud laws by having a personal financial interest in the bio fuel regulations upon which he was hired to give advice, which was mainly to cut requirements. Ichan was short the markets.

Import duties of edible oils by India have had a negative effect although apparently not so much on Maylasian palm oil which is holding steady.

The August 10th release of the WASDE report (World Agricultural Supply and Demand Estimates) is still playing a role after causing most grain prices to tumble. That report showed a fifth straight year of bumper crops, but demand also remained strong. That report showed an estimated 3.0 million tons of oilseed production for 2017/18, due to higher soybean production. Most think the USDA projections are a "best case" scenario, but at the same time grain prices are not going to run away any time soon.

Lower Argentine shipments show U.S. soybean exports at 1.5 million tons higher than last season. There were lower crush and soybean exports from Argentina during the last season.

Growth of organized sector and out-of-home eating are supportive for edible oil markets in India and elsehwere. Adani is a leading soybean oil import/export markets in India, and prices from that source are expected to grow at a moderate rate in edible oils due largely to a higher fluctuation in soybean oil pricing in the International market.

Speculators have refrained from heavy selling despite some analysts' dire predictions ahead of the recent USDA WASDE report. No analysts have cut the predictions for a plentiful domestic supply for grains. Last week marked the first time in eight weeks that speculator confidence in soybean oil did not expand. Money managers recently trimmed ther net long soyoil positions from 67,913 to 65,015 options and futures contracts on soyoil.

Egypt purchased 35 KMT of soybean oil in a tender just days ago. It was bought from Cargill and Alex. '

Vegetable oil markets in Asia have been described as "mixed." On the Dalian Exchange in China they are a little higher, but futures for Maylasian palm oil are losing ground there. Oilseed prices most recently are internationally lower. Until signs of stress emerge in the U.S. or later in South America, buyers have no need to worry about supplies. This will keepl markets under pressure.

The FDA recently approved importer Bunge's petition to claim soybean oil as "heart healthy."

Graphene is a form of carbon that exists as a sheet, one atom thick. It is 200 times stronger than steel. It conducts electricity better than cooper. One percent of graphene added into plastics could turn them into electrical conductors. It can be produced from soybean oil by heating the oil in ambient air until it breaks down into carbon building blocks that are essential for the synthesis of graphene. This makes soyoil significantly more commercially viable. Graphene could be used in water filters, solar panels, and batteries. Recent research on this has been done in Australia.


Point & Figure Chart

 41.5I                                                                  R  8/25
     I CBT - Dec-17 Soybean Oil, 60000lbs, $/clb   Cm.=0.05  Lim.= 1.8
     I
     I
     I
 40.0I_________________________________________________________________________
     I
     I                                    X
     I                                    XO
     I                                    XO
 38.5I____________________________________XO___________________________________
     I                                    XO
     I                    X               XO
     I                    XO              XOX
     I                  X XO          X   XOXO
 37.0I__________________XOXO__________XOX_XOXO_________________________________
     I                X XOXO          XOXOXOXO
     I                XOXOXO          XOXOXOXO
     I                XOXO O      X   XO OXOXO
     I                XO   OX     XO  X  OXO O
 35.5I________X_______X____OXO____XOX_X__OX__OX________________________________
     I        XO      X    OXOX   XOXOX  O   OXOX         X
     I        XOX   X X    OXOXO  XOXOX      OXOXO        XO  X
     I        XOXO  XOX    OXOXO  XOXOX      O OXO        XOX X
     I        XOXO  XOX    O OXO  XOXOX        OXOX       XOXOX
 34.0I________XO_O__XOX______OXO__XOXO_________OXOXO______XOXOX________________
     I        X  OX XOX      OXO  XOX          OXOXO    X XO OX
     I        X  OXOXOX      OXO  XOX          OXOXOX X XOX  OX
     I        X  OXOXO       O O  XO           O OXOXOXOXOX  O
     IX       X  O OX          OX X              OXOXOXOXOX
 32.5IXO__X___X____OX__________OXOX______________O_OXOXOXO_____________________
     IXO  XO  X    OX          OXOX                OXOXOX
     I O  XOX X    O           OXOX                OXOXO
     I O  XOXOX                O OX                O O
     I OX XOXOX                  O
 31.0I_OXOXO_OX________________________________________________________________
     I OXOX  OX
     I OXOX  OX
     I OXOX  O
     I OXOX
 29.5I_OXO_____________________________________________________________________
     I OX
     I O
     I
     I
 28.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
           11111111                   111111
      888990111222211233344455667788990111121122233345666778888
      112022002011202202211201011202121011201101202222122000112
      495256550705142394929292152535970111281326871445209551041
Our computer tells us a non-conventional reactive approach works best for soybean oil on p&f charts. Therefore the above chart is taken as giving a sell signal.


Cyclical and Seasonal Factors

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

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "%R." It is giving a sell signal.

Internal Printout 1 Internal Printout 2

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

Results


Third System Confirmation

Our third system is working on a long-term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still runs.)

Third System


Margin

The point value is $600. Initial margin on a single contract is $787. 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. Large speculators with the best track record are remaining long.

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 current uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Soybean Oil March 35 Put and Sell (1) Soybean Oil December 35.5 Put @ 0.06 to the sell side or better.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Dec. - Jul. 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 the long run. This disagrees with our ultimate recommendatioin. The best time to enter or leave the above spread is when it is at -0.40 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.64 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be approaching the buy the near, sell the far point.





Level Table:

Level Table

The path of least resistance is up.
 40.0|                                                                  T  8/25
 CBT - Dec-17 Soybean Oil, 60000lbs, $/clb   Cm.=0.05  Lim.= 1.8
     |
     |HH
     |GGHH
 39.0|GGGHHH___________________________________________________________________
     |GGGGHHH
     |GGHHH
     |GGGGGHHHHH
     |GGGGGGHHHHHHHH
 38.0|GGGGGGHHHHHHH____________________________________________________________
     |GGGGHHHHHJK
     |EEGGHJK
     |EEEGJJK
     |EEEEGJJK
 37.0|DEEEFGJKK________________________________________________________________
     |DDDDEEEEEFFFGJKKKK
     |DDDDDEEEEEEFFFGJKKKKKKK
     |DDDDDEEEEEFFFFGJJJJKKKKKKLL
     |DDDEEEFFFFGGJJJJJKKKKLLL
 36.0|DDEEFFFFFFGGGJJJJJJKKKKLLL_______________________________________________
     |DDDFFFFFGGGJJJJJJJKKLLMM
     |BBDFFFFFFGGJJJJJJLLLMMM
     |BBBBDDFFFFFJLLMMMMMM
     |BBBBCDDDDFFFFLLLLMMMMMMMNNNY[
 35.0|BBBBCCDDDDFFLLLLLLMMMMMMNNNOYYZ[[________________________________________
     |AAAABCCCDDDDDFLLLMMMMMNNNNOOYYYZZ[[
     |AAAAAAABBBCCCCCCCCCDDDLLMMNNNOOYYYZZ[   <<<
     |AAAAAABBBCCCCCCCCCDDLLMNNNNOOPXYYYYYZ
     |AAAABBBCCCCCCCDLNNOOPWXXXYYYYYYYZZZZ
 34.0|AAAABBBCCCNNOOOPPWWWXXXXXYYYYYZZZZ_______________________________________
     |ABBBCNNNNOPPPPWWWWWXXXXXXYYYYYZZZZZ
     |ABBBBNNNNOOPPPSTTTVWWWWXXXXXXYYYZZ
     |BBNNNNNOOPPPSSSSTTTTVVWWWWWXXXXXYZZZZ
     |BBBNNNNOOPPPSSSSSTTTTTVVVWWWWXXZZZ
 33.0|BNNOOOOPPPPSSSSSTTTVVVWWWZZZ_____________________________________________
     |OOOOOPPPPPRSSSSSSSTTTTTVVWWWZ
     |OOOOPPRRSSSSSSTTTTUVVWWW
     |OPPPQQQQRRRRRRRSTTUUUVVVVVWWW
     |OPPPQQQQQRRRRRRRRRTUUUVVVVVVW
 32.0|PPQQQQQQQQRRRRRRRRTUUVVVV________________________________________________
     |QQQQQQQQRRRRTTUUUUVVVV
     |QQQRRTUUUUUU
     |QTUUUUU
     |UU
 31.0|_________________________________________________________________________
     |
     |
     |
     |
 30.0|-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= 1.000
             1 1 1 1 1 1                                              
       8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 5 6 6 7 7 8 8           8
       2 1 2 1 2 0 2 0 2 0 2 0 1 0 2 0 1 0 1 3 1 2 1 2 1 2           2
       9 2 6 0 4 7 1 6 0 5 0 3 7 6 0 3 8 2 6 1 4 8 3 7 0 4           5


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 8/25 ).

Intraday Chart





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 19 December Soybean OIl on a Buy Watch with stoploss @ -1.62 below the get-in point when recent price is represented as "34.95".
____________________________________________________________________________________________________________________________________________W.G.