July soybean oil fell sharply from a high of 70 cents in early November to near 44 cents by the end of May. Since then, bean oil has gotten back more than a third of that down move. Spot July soybeans have rallied back, moving up 34 cents last week, and to a three-week high, helping bean oil as well. In bean oil, managed money funds liquidated much of their short position last week, and as of Tuesday, were still short only 14,000 contracts. By Friday's close, one would have to assume that those funds are now closer to even.
The move in bean oil seems to be mostly technical in nature as funds had gotten too short and the market was oversold. A word of caution. Even though bean oil looks like it could continue the impressive rally, the momentum indicators are approaching the oversold zone, and it would not be a surprise to see a setback. However, early calls for Sunday night were for beans to rise 5 to 10 cents on the mostly dry and warm weather ahead after some showers fell on the weekend. A convincing close above this trendline in July bean oil could bring funds back into the market on the long side.
Sometimes when looking at charts, one must use one's imagination a bit. Wheat is another crop that has been beat up on the futures side until just recently. Both KC July and KC September wheat, if you look closely, could be in the process of forming a "reverse head & shoulders" chart pattern. That is often a reversal pattern after a downtrend. This is strictly an observation, and U.S. wheat stocks remain tight. However, on Friday's June WASDE, world ending wheat stocks moved over 6 million metric tons (mmt) higher for new crop. In my mind, this is only important if KC September moves above $8.40 on a closing value -- that's still nearly 50 cents away from Friday's close. Like I said, you need to use your imagination sometimes.
Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.
Dana Mantini can be reached at Dana.Mantini@DTN.com
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