The benchmark April Malaysian palm oil contract may have flashed a warning sign on Friday, gapping lower on the chart to reach a 12-day low. A combination of profit-taking and a reaction to lower soybean oil prices is reported behind the move. Friday's close remains just 4.6% below the December high on the continuous chart which marks the highest level reached since May 2012.
Soybean oil futures reached an almost 2 1/2-year high in the month of December although have fallen 10.6% from the high, while reaching a 10-week low in today's trade. Trade fell below retracement support at 34.18 cents/lb this session, but closed above this level. A breach of this level could result in a further slide to 33.52 cents, the 38.2% retreatment of the same uptrend.
The two lower studies point to the market forces affecting price direction for soybean oil. The red bars on the third study shows the noncommercial net-long position growing for the third consecutive week to 124,542 contracts as of Jan. 24 CFTC data. This still remains near the largest weekly net-long position ever held, with the Oct. 31 report indicating an investor or noncommercial net-long of 160,160 contracts, the largest on record.
The lower study represents the March/May futures spread. This spread weakened this week to the weakest level seen over the life of the contracts, a sign of growing commercial bearishness.
This weakening in soybean oil futures along with Canadian dollar strength has taken its toll on estimated canola crush margins. As recently as Jan. 12, the Canadian Canola Board Margin Index, a proxy for returns generated crushing canola, was reported at $130.14/mt, $44.41/mt higher than year-ago values. Friday's close reported this index at $101.26/mt, just $10.35/mt higher than year-ago levels. Weekly crush as of Jan. 25 was reported at 185,576 metric tons, a three-week high while cumulative volumes remain well ahead of the pace to meet the current 8.9 million metric ton crush target.
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