Soybean oil for March delivery continues to diverge from soymeal futures. On Dec. 14, March soybean oil futures closed 1.06 cents/pound (lb.) USD or 2% lower, reaching a fresh five-month low while breaching the 33% retracement of the move from the contract low on April 27, 2020, to the contract high reached on June 10, 2021. A continued move lower could result in a potential test of the 38.2% retracement at 50.70 cents, which is slightly higher than the June 2021 low of 50.29 cents, creating a range of potential support. The stochastic momentum indicators on the daily chart are in oversold territory, while over the life of the contract, these indicators do not tend to remain in oversold territory long.
At the same time, soymeal for March delivery closed $3.30/ton USD higher at $373.80/ton USD, reaching a four-month high. Today's move saw the March contract breach the 61.8% retracement of the move from the contract's May high to October low at $372.70/mt.
A ProphetX continuous active oil share chart shows the soybean oil share falling to 40.9% on Dec. 14, down from 49.6% reached on Oct. 20 and the lowest percentage calculated since late April.
The weakness in oil is a bearish factor for the canola market, although today's March soybean oil contract closed at a level that is down 19.1% from its June contract high while March canola is down 3.9% from its Nov. 29 high, trading sideways overall.
March canola closed $4.80/mt lower at $979.20/mt on Tuesday, while finding support at $475/mt for a third consecutive session.
The lower study on the attached chart shows the continuous active canola/soybean oil spread narrowing since reaching a low in early June, while closing at minus $501.64/mt CAD on Dec. 14 (soybean oil over canola). This spread remains wider than the three-year average of minus $392.80/mt and the similar five-year average of minus $397.73/mt, based on the Aug. 1-through-July 31 crop years from 2016-17 to 2020-21.
Continued soybean oil weakness may act to prevent upside for canola but will not necessarily pull canola lower as this spread moves closer to its long-term average.
Cliff Jamieson can be reached at firstname.lastname@example.org
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