Soybean Oil: Price vs. Technical vs. Fundamental

Soybean Oil: Price vs. Technical vs. Fundamental

by Jason Thomas, President of Healthy Brand Oil


Price- This morning, DEC 2023, soybean oil traded to new calendar highs of .6337. We want to take note of new calendar highs, and alone I would consider them to be a bullish indicator; after all, the most important arbiter of whether we are right or wrong is what the price is doing. Market participants often can spin any story to support or defend their call, but if the price is doing the opposite of your thesis at the end of the day, you are wrong.

Technical Analysis- Most would consider price the essential technical indicator, but other indicators/studies can help round out our analysis and give us additional perspective on how markets are moving and behaving. From this perspective, the price is making calendar highs but doing so on less volume giving us an Relative Strength Index (momentum) reading that is going lower. When the price increases but RSI goes lower, this condition is called bearish divergence. On a daily chart, momentum divergence can often go on for a couple of months, so using only momentum one does need to be thoughtful about making decisions only utilizing this methodology (or any one indicator). Sooner or later, market momentum will matter, though, and the longer the price bucks it, the more violent the move to correct this condition will be. You can see an example of bullish divergence from March-May (blue arrows) below, a resolution that saw soybean oil trade +42% in 35 trading days. Right now, RSI is not confirming the new highs in soybean oil, which should put the bulls on guard.

Fundamentals- Underlying fundamentals are the gravitational pull for price.  Price and fundamentals can diverge in the same way Michael Jordan could defeat gravity for short periods of time.  In the end though the laws of gravity and fundamentals do most often converge. So, what are the fundamentals of soybean oil right now? Here is a note from The Jacobsen/Fast Markets from Wednesday night.

“Renewable diesel traders do not have much of an appetite at the moment,” one source stated. Margins for biodiesel and renewable diesel have been narrowing, with many biodiesel producers now in the red.

Another trader indicated that a large oil major was in the market selling soybean oil, which provided some pressure on prices. Fastmarkets’ reached out for comment but had not heard back as of publication. By the end of the day, basis levels have not changed from last week. 

Understanding what is happening in the physical markets can be a bit of a cheat code when analyzing price action. In my conversations in the trade, I can confirm this same sentiment, and given renewable biodiesel’s importance on the demand side of the equation, it’s a super important insight. Add to the fundamental story that food demand is slightly underperforming expectations, and the physical global veg oil market remains cheaper than domestic prices; today’s fundamentals are bearish, not confirming the price action.

As always this is not a trade recommendation and our team at HBO always encourages a risk first approach to managing these markets.

HBO’s Profit Lock Bottomline:  We need to respect soybean oil’s price action here but feel that these new calendar highs should be considered skeptically, given the technical indicators and our fundamental insights are not confirming the price action.

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