Technically Speaking

Soybean Meal May Be a Bargain

Dana Mantini
By  Dana Mantini , Senior Market Analyst
This is a daily chart of July soybean meal, recovering from a recent beat down, which saw that contract plunge $79 per ton in just 11 days. (DTN ProphetX chart by Dana Mantini)

JULY SOYBEAN MEAL FUTURES:

On the heels of a still bullish outlook for soybeans, perhaps the soy meal futures market, which has been everybody's favorite short hedge, could be a bargain. July meal, after plunging nearly $80 per ton in just 11 days, has been slowly recovering, gapping higher Sunday overnight. While the focus has been on soybeans and soybean oil in the ongoing bullish rally that began early in the year, it would be unusual for soy meal not to follow as we resume the higher trade. Extreme temperatures and below normal precipitation in the Northern Plains and northern Midwest looks to stick around for the next 10 days. Soybean meal, relative to the rest of the soybean complex, is still fairly oversold and funds have whittled their net-long in meal down to a manageable 20,000 contracts as of last Tuesday and estimated to be just 11,000 contracts to begin the new week. As processors showed the first sign of rationing last week, with the lower-than-expected crush rate, that may continue as old-crop soybean supplies remain tight, lowering the supply of meal.

MINNEAPOLIS WHEAT FUTURES:

A look at the monthly continuation chart on Minneapolis wheat futures shows the high on spot July futures to be the highest since 2013. With a dire weather forecast ahead for the northwestern and Northern Plains spring wheat regions, look for the next market objective to be the highs set in the drought year of 2012. In that year, we saw the mid-July high rise well over $10 per bushel. That's quite a stretch, especially with world wheat supplies still large, but not out of the question. However, the Minneapolis market is approaching an overbought level, so expect volatility to remain very high. On a setback, bulls will want the $8.19 gap level to support July, and below that, $8.03 to $8.07 should contain any weakness.

NOVEMBER SOYBEAN FUTURES:

Following weekend temperatures that soared above 100 degrees Fahrenheit in parts of North Dakota on Friday and Saturday, the market is adding back weather premium. The emphasis early on Monday is on new-crop November soybeans, which rose to a 36-cent gain at the end of the Sunday overnight. While the soybean market is becoming somewhat overbought, the gap higher could mean another leg higher on soybeans as the need becomes more intense for the U.S. soybean yield to be at trend or better, or risk dangerously low supplies in the 2021-22 season. However, nothing is that easy, and some rains are projected in the north. On a setback, look for November beans to show solid support at the $14.36 to $14.40 area. With a $1.40 plus inverse from July to November, new-crop beans appear to be a bargain, even at over $14.

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Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grain and soybean futures involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at: dana.mantini@dtn.com

Follow Dana on Twitter @mantini_r

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