Canada Markets

Following an impressive breakout into new contract highs, surpassing not only the top of a symmetrical triangle but long-term resistance at old support, three strong waves of selling put the market on its heels. With nothing fundamental changing, it may have simply been bulls getting out too far over their skis. The key now will be to see bargain hunting step up soon in a convincing manner.

Beginning at the end, the series of violent selloffs since the May 14 contract high were blamed on rumors that the EPA would grant Small Refinery Exemptions (SREs) en masse for the more than 160 outstanding applications. That has been denied many times by the EPA with its suggestion that it was individuals or entities trying to manipulate prices in their favor. See more in DTN Environmental Editor Todd Neeley's update at: https://www.dtnpf.com/….

As a back story, the first Trump administration had done something similar, much to the disappointment of the biofuel production industry, resulting in significantly lower total blending demand and prices. That was a different time when agricultural interests were competing head-on with traditional oil-producing entities. Since then, oil companies have invested heavily in renewable energy projects and are now working with their agricultural counterparts to promote blending requirements.

In fact, part of the spike up into new contract highs came from a joint effort by the coalition of interested parties approaching the EPA with a request for the 2026 biomass-based biodiesel blending requirement to be set at 5.25 billion gallons, up from an expired 3.5 billion gallons for 2024. They had reportedly been initially looking for 5.5 billion to 5.75 billion gallons to be the minimum but had eventually pulled that back a bit.

The initial break from contract highs on May 15 was blamed on rumors that the EPA administration had submitted its request to the White House for approval of 4.65 billion gallons as a blending mandate level. It later was suggested that rumors of the SREs had exaggerated the selloff. Then the latter rumor (regarding SREs) was reintroduced a few times since, contributing to the ongoing weakness.

The real problem seems to be the lack of concrete plans or progress to counter the rumors. With many of the improvements for the industry tied up in the budget bill that just barely cleared the House and now is being negotiated by the Senate, it could be a while before anything is final. Fears that support for the industry may be lost in the concession process as lawmakers try to make further budget cuts hang over the market.

Getting back to the fact-based, supportive part of the situation -- exports and domestic use have continued to be exceptionally strong.

According to the most recent U.S. weekly export sales report, another 43 million pounds of soybean oil sales were made during the week ended May 22. That takes total commitments (exports plus outstanding sales) to 2.287 billion pounds for 2024-25 in just under 8 months of the marketing year. The USDA was forced to increase its annual estimate again in May to 2.4 billion pounds with that already looking too low. It's worth remembering the USDA annual export estimate was 600 million pounds up until revisions began in December. It's also worth noting that last year at the same time, total soybean oil export commitments stood at just 311.5 million pounds. And that isn't a misprint.

On the domestic front, the USDA just released its April oilseed crush report with exceptional demand for soybean oil seen there as well. For the month of April, a record 202 million bushels (mb) of soybeans were crushed, up from 178 mb last year. That produced 2.403 billion pounds of crude soybean oil, also a record for the month and 14.6% ahead of last year's 2.096 billion pounds. Yet, end-of-April soybean oil stocks were 336 million pounds or 14.6% below year-ago levels (combined crude and once-refined soybean oil stocks).

It is worth noting that USDA's first look at 2025-26 soybean oil as part of its May update shows no end in sight for the supply/demand balancing act. It contains an increase in biofuel use (to 13.9 billion pounds from 13.1 billion in 2024-25) supplied by a 700-million-pound reduction in exports compared to the current marketing year. Two things that jump out from those assumptions are: What if exports aren't curtailed? And what if soybean production does come up short given the lofty yield estimates the USDA used? Meaning soybean crushing cannot be increased by 70 mb (compared to 2024-25) as is currently projected.

So, if the fundamental picture has not soured, what does the technical picture look like? The monthly chart is still suggesting the break into 2024 was simply a huge bull market correction off the 2022 highs. The recent rally suggests at least a bounce could be expected with light resistance found at 51, 54.50 and 60 cents/pound areas with significant resistance not seen until 65 cents.

The weekly and daily charts have excellent-looking saucer bottom formations that have been forming since mid-2023. The longer it takes to form, the greater the upside move is should bullish developments allow it to play out. A close over the May high at 52.62 cents will be the next challenge for the bulls. Helping with that, a possible bull market buy on the daily chart is close to being triggered using popular indicators.

Looking at market participants themselves, managed-money traders have returned to the net-long side in recent months but are far from extreme levels. As of May 27, they were net-long 53,988 contracts, well short of their 2016 record of 126,543 contracts. Plenty of buying power should they decide to deploy it.

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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