03-09-2010: July Soybean Meal: More Bumper Crops from South America
The two keys to soybean meal are increased competition from South America coupled with declining demand, as soybean use for bioi-diesel has been declining. Soy meal is rich in protein and nitrogren, useful for animal feeds, pet feeds, fertilizer applications (although it is not considered a fertilizer) and the like. Increased demand for beef and other meat and poultry products encourages bringing produce to market sooner, decreasing the need for animal feeds to keep liverstock alive while waiting to go to market.
Of late, the USDA has consistently been dropping its monthly estimates of ending stocks of soybeans, month after month, as traders expect this to continue. This has spillover to soybean meal, the principal product of the soybean "crush," so the market seems somewhat bearish at the moment.
July Soybean Meal:
July Soybean Meal:
Strength in the energy markets and a weaker tone for the U.S. Dollar provided support for the soy complex. There were very few meal deliveries against the March contract. Ending stocks in soybeans may come out near 195 million bushels on the USDA supply/demand report. Theyw ere lowered to 210 million bushels in February down from 245 million bushels the prior month. Meal bids have been weak on slow export demand. U.S. weather and South American weather prospects both look good, especially for a South American harvest in progress. The Chinese indicated they may be importing soy products at a very high level, reducing soybean acreage to meet consumer high demand for meat. The Chinese also have a stimulus package they intend to keep in place until inflation heats up there. In meal, non-commercial traders were net long 21,562 contracts, a decrease of 6,973 contracts from the prior week.Trend following traders are mostly shorting meal and buying oil.
Worldwide, the USDA estimated that 2009-2010 ending stocks of soybeans will increase from 42 to 60 million tons or 25% of annual use.
Each bushel of soybeans produces about 48 pounds of soybean meal and 11 pounds of soybean oil, so soybean meal is more closely tied to the performance of the soybean market. Sometimes soybean meal can be used to help plants although it is not considered a fertilizer. It is heavy in nitrogen, so it makes plants grow.
The overall assessment of news for soybean meal seems to be expectations that competition from South America and slowing demand will limit upside potential.
345.0I R 3/ 5
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Our computer says a non-conventional reactive interpretation of point-and-figure chart signals works best for Soybean Meal. Therefore, the above chart is taken as giving a buy signal.
We are headed toward a cyclical high and a seasonal up period.
Our best-performing internal program is " WilderRT." It is giving a sell signal.
Results of "WilderRT" for Soybean Meal (blue lines = successful trades, red, unsuccessful): (Not always in the market.)
Our third system is working on a longer-term sell signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $100. Initial margin on a single contract is $2,700. Use of options is advised.
Scale traders are not a factor in this price range.
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. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that a major change in direction to up is imminent at a volatility low point.
Our option trade recommendation is to Sell the Soybean Meal August 270 Call @ 11 80 or better.
What the Jul. - 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 up. The best time to enter or leave the above spread is when it is at 8.00 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 20.00 or wider buying the far as prices are rising and then sellling the near.
Here's an intraday chart for the previous day ( 3/05 ).
Risk Versus Opportunity Report
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SMN0 July Soybeans
High Price: 273.4
Current Price: 258.6
Low Price: 228.2
Risk: -0.118
Opportunity: -0.242
(O/R) Ratio = 2.054
Level Table:
| Factors | Weighted Points |
|---|---|
| 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 |
| Commitment of Traders | - 1 |
| Historic Range | 0 |
| Range/Volatility | + 1 |
| Level Table | - 1 |
| Other Factors | - 1 |
| Total | - 2 |
Place 11 July Soybean Meal on a Sell Watch with stoploss @ +17.8 above the get-in point.________________________________________________________________________________________________________W.G.
