Canada Markets

Soybean Oil vs. Soymeal: Investors' Diverging Opinions

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The net-long futures position held by noncommercial traders, or investors, of soybean oil has fallen over the last three weeks (blue bars, upper study) as of the week ending May 31 while the lower study shows the net-long futures position of soymeal held by this group increasing over the past six weeks (red bars). (DTN graphic by Nick Scalise)

Friday's weekly CFTC data highlights opposing trends seen in the net-futures positions for soymeal and soybean oil futures held by noncommercial traders, or investors, which has implications for the canola market.

The upper study on the attached chart shows the noncommercial net-long position in soybean oil futures (blue bars), which shows this position slip lower for the third consecutive week as of the week ending May 31 to 61,229 contracts, just 48% of the April 5 high, after reaching the highest level seen in the week ending April 5 in CFTC data going back to the late 1980s.

Interestingly, a similar trend was seen this time last year when a high was reached the week of June 9 of 104,815 contracts while sliding to a low of a net-long of just 6,047 contracts by late September. Over the past nine weeks, the noncommercial net-long position in soybean oil futures has fallen in six of the nine weeks to the lowest level seen in 12 weeks or since the week of March 8.

CFTC data shows this same group of investors taking an alternative approach to soymeal trade, as seen with the red bars of the histogram in the lower study. After switching from a net-short futures position to net-long in the week ending April 19, noncommercial traders or investors have saw this position increase in each of the following six weeks to the latest level of 86,839 contracts, the highest level since August 2015.

This bullish approach to soymeal trade, a less-bullish approach to soybean oil and supportive commercial buying in beans and meal has resulted in soybeans hitting two-year highs on the continuous active chart on Friday, taking out resistance from a gap in trade formed between the weeks of June 30 and July 7, 2014, on the continuous active chart, while canola remains stalled in sideways trade.

July canola's weekly chart shows last week's July canola trade consolidating in the previous week's trading range, while continuing with the similar pattern in Monday's trade as buyers and sellers seek direction. The chart formation is referred to as a pennant, a pause in trade which will require an upside breakout on high volume to act as confirmation of continuation of the previous uptrend.

The challenge for the canola market is the demand for soymeal which has acted as the driver behind the recent soybean rally. DTN's seasonal charts would indicate that both soybean and canola nearby futures tend to trade sideways to slightly higher over the next three weeks, while the five-year average trend beyond the three weeks is lower for both.


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