Technically Speaking

Soybean Meal Appears Too Cheap

Dana Mantini
By  Dana Mantini , Senior Market Analyst
The chart above is a weekly chart of December soybean meal futures showing major support just below $302 to $308, with a market that has become oversold. (DTN ProphetX)


Soybean meal has been everyone's short leg for the past six months, but enough might be enough. Spot soybean meal is the lowest it has been in 13 months and December meal has now plunged over $112 per ton just since May. That weakness has led to better export interest, with last week's sales of 365,400 short tons well above expectations. True, soybean oil and the demand for is has driven crush over the past several months. However, the meal market has become very oversold and the managed money funds continue to add to their net short, now estimated to be 40,000 contracts. Part of the reason for meal weakness has been China's slower demand for beans this year, as plants have closed to conserve energy and hog prices/margins have fallen dramatically. China's crush margins are now said to be very strong, and that could increase the demand for U.S. soybeans. The December soymeal chart is oversold on momentum indicators, suggesting a bounce at some point. Major support lies just below, at $302 to $308, which will be hard to penetrate.


Kansas City December wheat looks to be forming a bullish flag chart pattern, with the potential for strong upside gains. Although not an exact science, the bull flag chart formation is typically a continuation of the trend in the market, which has been up. A strong close above Friday's close on Kansas City has the potential to rally prices above $8.00, perhaps even to $8.20. In recent weeks, the fundamentals have turned much more bullish on not only the U.S., but also on world wheat markets. U.S. ending wheat stocks are the lowest in 13 years, while world ending stocks are the tightest since 2016-17 and major exporter stocks the lowest in years.


December corn has now plunged $1.32 from the high set back in early May. U.S. harvest this week will likely be nearing 60% complete and farmers don't appear to be too excited to sell at these levels. U.S. corn export prices have now become the world's cheapest, reported to be as much as $25 per metric ton (mt) discount to major competitor Ukraine, while having a much larger discount to Black Sea feed wheat. Although China has yet to return to U.S. corn export circles since their buying binge in May, the spread between U.S. corn and China corn has again widened out, making Chinese imports more profitable again. The timing of Chinese purchases is in question, as China is harvesting their own record-large corn crop. However, with wheat prices surging and China feeders switching back to corn at the expense of wheat, more imports may be in the cards. December corn futures are oversold and primed for a bounce from here.

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.

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