DTN Grains Analyst Todd Hultman wrote an interesting piece this week titled What Just Happened?, noting the curious move in soybeans on Dec. 17, with prices quietly bouncing off of a low of $8.54 per bushel in the January contract to advance 14 1/2 cents on that day, another 15 1/4 cents the next day and reaching a high Monday of this week of $8.96 1/4/bu.
The January contract printed a bullish outside day reversal signal Dec. 17, which follows the same signal that was noted on Nov. 23. This comes despite a number of global analysts sticking to their bearish forecasts for a record Brazilian crop mixed with concerns that a reduction in export taxes in Argentina, along with a weakening of that country's currency against the U.S. dollar, will lead to increased exports from that country. Hultman reminds us of the age-old adage that "It's often darkest before the dawn."
Another oilseed market showing interesting signs is the palm oil market. The benchmark March contract on the Bursa Malaysia Derivatives Exchange also reached a short-term low Dec. 17 and has since increased in four consecutive sessions. As seen on the attached chart, the December high (reached Dec. 23) on the March contract of 2,490 ringgits/metric ton ($580.44 USD) is the highest level seen on the continuous active monthly chart since June 2014, or in other words, near an 18-month high. This monthly bar is circled on the attached chart.
Also indicated on the attached chart, the downward trend in palm oil prices has seen momentum increase since reaching the 2008 monthly high, as indicated by the downward-sloping blue lines. The original downtrend line was drawn from the March 2008 high through the February 2011 high, a downward trend that increased in momentum as indicated by the steeper line drawn from the February 2011 high to the April 2012 high. In turn, this downward move gained velocity as indicated by the downward-sloping line from the April 2012 high through the March 2014 high.
This final downtrend was broken by a sharp move higher in September, with a consolidation period seen in October and November with the formation of a flag chart pattern and a resulting breakout higher this month.
The USDA's December Oilseeds: World Markets and Trade report shows the world palm oil production forecast for 2015/16 falling for the second straight month to 62.61 million metric tons, down 2.5 mmt from the November forecast and only a modest 1.9% increase from 2014/15.
The move in futures comes in spite of Malaysia's growing inventory which was reported at a record 3 mmt as of the end of November, while exports are lagging, with Dec. 1-20 export volumes down nearly 25% from the same period in November.
At the same time, the Malaysian Palm Oil Council (MPOC) states this indicates nothing more than seasonal stocks, following peak production months in September and October. Renewed buying interest is expected in the first quarter of 2016 combined while the negative impacts on production from El Nino may be a continued supportive feature in this market. While the current El Nino event is linked to impacts on global production of various crops around the world, it is suggested to take a nine-month period for impacts to palm production to be realized, expected to be experienced in the last half of 2016.
The USDA's December estimates show that 2015/16 palm oil production will make up 35% of the global vegetable oil production, while MPOC tweeted today that palm oil is consumed by 3 billion people in 150 counties making it the highest consumed edible oil. The MPOC is calling for a continued recovery of this market in 2016, with the 38.2% retracement of the move from the 2011 high to the 2015 low found at 2,667 ringgits a potential target.
A look at futures spread charts (not shown) indicates a weakening March/April and April/May spreads, hinting at an increasingly bearish view of fundamentals held by commercial traders, suggesting the move is investor-driven which could lead to a sudden change in market direction.
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Cliff Jamieson can be reached at email@example.com
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