12-02-2017: March Soybean Meal: Markets "Choppy"

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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

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Introduction

"Choppy" is the best way to describe soybean meal trade. Our technical and fundamental factors are so balanced that we had to double-weight the news to break the tie in our Decision Matrix. Even the news is very hard to interpret as to its impact on future prices. Probably the best approach is to buy on dips, sell on peaks, with possibly low risk to bail out of any mistakes if one gets a good enough price initially. As with so many commodities recently, China, which produces much of its own meal, is a big and unpredictable factor. The usual export competition from South America is out there with prices relatively balanced and shipping costs dominating who gets what contracts.


Intermarket Analysis

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




Parabolic Chart

March Soybean Meal:wh

Parabolic Chart


Nirvana Chart

March Soybean Meal:

Initial Chart


News Analysis

Managed money traders continue to hold a net long position in soybeans and soybean meal compared to short positions in corn and wheat. Some caution is warranted as the soy complex approaches an overbought position. The latest N. Korean missile tests seems to have not affected grain markets. Some weakness in both Asian and European economic reports could put the brakes on further rise in the soy complex. Soy oil and soy meal spreaders are active. Soybean crop estimates for Brazil and Argentina suggest good weather conditions there with adequate moisture. However, drier weather is forecast there for December. There has been a bullish expectation to an upcoming EPA ruling on bio-fuel mandates. The mandate is anticipated to remain unchanged from last year. In China, a major importer, there has been a delay caused by GMO certification processes there, which is pressuring the market. Inventories of soybean crush products in China have risen to 6.33 mimllion tonnes versus 5.97 for the previous week, even as GMO safety certificate settlements have continued there. The overall soybean meal market is described as "choppy."

Projections for overall acreage released by the USDA for 2018/19 show a new record to be set for soybeans with an overall increase set for other grain crops. Bean plantings are projected at 91 million acres, up from 90.2 this past year. Wheat plantings however are declining. Planting progress for soybeans in Argentina is about the same as last year. Brazil is also seeing an average planting pace for soybeans. China recently bought 263,000 tons of U.S. soybeans. Trends in the whole complex are very mixed.

In Germany, Archer Daniels Midland is making decisions to invest in and produce non genetically-modified high protein soybean meal. The demand for non-G.M.O. soybean meal from European farms is steadily growing. Soybean meal is segmented on the basis of process of production as organic and inorganic. Due to rising health concerns, people are preferring organic soybean meals.

Aquaculture (fish production) in Southeast Asia has become an increasingly important source of demand for soybean meal. It now represents 10% of the overall soy market there, now.

The soybean meal market is segmented into five key areas, North America, Latin America, Europe, Asia-Pacific and the MiddleEast/Africa regions. China and India are the biggest producers of soybean meal. The U.S., Brazil and Argentina are the major producers of soybeans. Increasing pet and pet health segmens are another factor driving demand increasingly in the soybean meal market.

Any breaks in the soybean meal markets are primarily driven by news out of China. An example earlier in the year was that China was buying, importing, and crushing soybeans at an extraordinary rate, a full 9% above last year's pace. But their soybean meal demand was only up 5 to 6%. The imbalance finally manifested itself as inventories in China rose to a five-year high. Rumors about cancellations and rolling soybean cargoes forward began to circulate contributing to a bearish tone in the U.S. and Chinese futures markets.

Poltiical problems in Brazil resulting in currency devaluation added to a bearish tone to soybean exports and allow soybean meal to sell near lows for the year.

A major U.S. poultry producer reported this year that its soybean meal usage is down 14% this ear due to increased usage of "DDG's and lysine."

Tariffs to block imported soybean product usage in the U.S. have been a threat which is supportive for the complex prices. The government continues to contemplate countervailing anti-dumping duties.

In general, soybean complex news suggst that export competition has suppressed expansion of U.S. sales. In the latest WASDE report, soybeam meal prices was projected at $295 to $335 per short ton, up $5 on both ends of the range.

We would, based upon the news, look for a continued "choppy" market with a slight upward bias to soybean meal prices.


Point & Figure Chart

515.0I                                                                  R 11/29
     I CBT - Mar-18 Soybean Meal, 100 tons, $/ton  Cm.=0.30  Lim.=18.0
     I
     I
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495.0I_________________________________________________________________________
     I                                      X
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475.0I____________________________________X_XOXO_______________________________
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455.0I____________________________________XOX__OXO_____________________________
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415.0I____________________X_____________X__________O_O_________________________
     I                    XO            X            O
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     I                    XOX           X            O
     I                    XOXO        X X            OX
395.0I__X_________________XOXO________XOX____________OXO____________X__________
     I  XO                XOXO        XOX            OXO            XOX
     I  XOX X X X         XO O        XO             OXOX           XOXO
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     IX XOXOXOXOXOX   XO  X  O      X X                OXO          XO O
375.0IXOXO_OXOXOXOXO__XO__X__O______XOX________________O_O____X_____X__O_______
     IXOX  OXOXO OXO  XO  X  OX X   XOX                  O    XOX X X  O
     IXO   OXOX  O O  XO  X  OXOXO  XOX                  OX   XOXOXOX  O
     IX    OXO     OX XO  X  OXOXO  XOX                  OXO  XOXOXOX  O
     IX    OX      OXOXO  X  O OXO  XO                   OXO  XOXO OX  O
355.0IX____O_______OXOXOX_X____O_O__X____________________O_OX_XO___O___O_______
     IX            OXO OXOX      O  X                      OXOX        OX
     IX            O   OXOX      O  X                      OXOX        OXO
     I                 O OX      O  X                      O O         OXOX
     I                   OX      O  X                                  OXOXO
335.0I___________________OX______O__X__________________________________OXOXO___
     I                   O       O  X                                  OXO OX X
     I                           OX X                                  OX  OXOX
     I                           OXOX                                  OX  OXOX
     I                           OXOX                                  OX  OXO
315.0I___________________________O_OX__________________________________OX__OX__
     I                             OX                                  OX  OX
     I                             OX                                  O   OX
     I                             OX                                      O
     I                             O
295.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
      111111111111              1111                        11111111         11
      1111111222221112234567889900223445555566666777777888990000122211227777901
      0111112001230121102102111212120220122200012000112012110123200213120122122
      4012345156616260729280025236887274045723808567147162234201216020533355447
Our computer tells us a non-conventional reactive approach works best for Soybean Meal on p&f charts. Therefore the above chart is taken as giving a buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low 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 Meal (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a sell 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 $100. Initial margin on a single contract is $1,695. Use of options is advised.


Historic Range

Scale trade buyers are narrowly 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 getting increasingly-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 down is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Soybean Meal July 320 Put and Sell (1) Soybean Meal July 340 Put @ 10.60 to the sell side or greater.


o 1 o 2 o 3 0 4 o 5


The following is an effort to track previous option trade prices if positions were held indefinitely.


*** It should be understood that some of these trades may have gone through periods where they were very profitable before moving out of the profitable range. This can be tracked by reading the "Option Trade" section of the corresponding article and noting on the option graphics chart shown there the corresponding profit or loss for previous underlying commodity prices. Thus any of the above trades might be or have been profitable if terminated at the right time, underscoring as with all commodity trades the importance of continuous monitoring.


Calendar Spread

What the Mar. - Sep. 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 in the long run. The best time to enter or leave the above spread is when it is at -2.80 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -5.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the far, sell the near point. This disagrees with our ultimate conclusion using other factors.





Level Table:

Level Table

The path of least resistance is up.
410.0|                                                                  R 11/29
 CBT - Mar-18 Soybean Meal, 100 tons, $/ton  Cm.=0.30  Lim.=18.0
     |
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400.0|D________________________________________________________________________
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390.0|DDDDFFF__________________________________________________________________
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     |DEEEEEFFF
380.0|DDEEEEEEEEFF_____________________________________________________________
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     |ADEFF
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370.0|ACD______________________________________________________________________
     |AAAACD
     |AAAAAAABCC
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360.0|AAAAAABBBBBCCCCCCCCG_____________________________________________________
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350.0|GGGGQQQ__________________________________________________________________
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340.0|HQQQRR___________________________________________________________________
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     |JJJJJJJKKKKLLLLLLMMMMPRRRWXXXXZ
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320.0|MMMMNOOPRRSSVVVVWWWWWWWXXXYYYYYYZZZ______________________________________
     |MNNNOOOPRRRSSSSVVVVVVWWWWXXXYYYYYYYYZZ
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310.0|NNNNOPPPSUUUUU___________________________________________________________
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300.0|-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= 0.725
       1 1 1                                     1 1 1 1 1           1
       2 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 0 1 1           1
       0 1 2 1 3 1 2 1 2 1 2 1 2 0 2 0 2 0 1 0 1 0 1 3 1 2           2
       1 4 9 3 0 3 8 4 8 1 6 0 4 8 2 7 1 4 8 1 8 2 6 0 3 8           9


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 11/28 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                SMH8    March Soybean Meal

                      High Price:  349.8
                   Current Price:  330.7
                       Low Price:  321.2

                            Risk:  0.057
                     Opportunity:  0.114

                    (O/R) Ratio =  2.011


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart - 1
News + 2
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 + 1
Place 8 March Soybean Meal on a Buy Watch with stoploss @ -11.00 below the get-in point when recent price is represented as "328.70".
____________________________________________________________________________________________________________________________________________W.G.