Canada Markets

Fiscal Cliff Resolution May Help Buoy the 2013 Soybean Oil Market

By Cliff Jamieson , Canadian Grains Analyst

The resolution of fiscal cliff talks in the U.S late yesterday failed to spark life into the grain markets, despite gains in global equities and commodities such as gold and crude oil. However, one positive outcome of the legislation is the retroactive reinstatement of the $1/gallon biodiesel blender's credit, which had expired Dec 31, 2011. The credit is now in place retroactive to Jan 1, 2012 until Dec 31, 2013.

The credit began in 2005 and has been allowed to lapse in 2010 and then again in 2012, creating an unstable environment for producing facilities. "It's been a long year with a lot of missed opportunity and lost jobs in the biodiesel industry," said Anne Steckel, who is the vice president of federal affairs at the National Biodiesel Board in today's statement.

While soybeans are used for approximately 50% of the biodiesel production in the United States, the lost opportunity due to the uncertainty of 2012 production is suggested to be 300 million gallons worth of production and more than 19,000 jobs, while the change alone could create an additional $3.1 billion in GDP for 2013, according to Biodiesel Magazine.

Soybean oil futures responded favorably to the news in today's trade. From the March contract's most recent low of 47.51 cents on Nov. 16, March soybean oil futures reached a closing price of 51.05 cents in today's trade. The result was a one-day gain of 1.35 cents/pound or 2.7%. Short-covering and the unwinding of short oil/long meal spreads were suggested to be behind the bulk of the activity. Today's trade gapped higher to breach the resistance of both its 20-day and 50-day moving averages, while both daily and weekly stochastic indicators are in neutral territory and trending higher, showing no sign of rolling over.

Upside resistance is layered from previous weekly highs of 51.70 and 51.75 cents, while 51.77 cents is the 38.2% retracement of the September through November downtrend.

This move may have positive implications for canola futures, given canola's high oil content and its response to the vegetable oil markets. Despite a Canadian dollar rally today and pressure in the soybean pit, canola traded in positive territory for the majority of the session, with the gain in soybean oil one of the attributing factors which ultimately acted to limit further losses in today's session.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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