Grain Spreads: Bean Oil leads Complex
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Commentary
Bean prices firmed this week to two-month highs driven higher in my view by the breakout rally in bean oil. There are also signs of de-escalation with China. The Chinese last night as announced some tariff exemptions of some US products. The initial focus appears to be on exempting imported medical equipment, ethane, and plane leasing. Furthermore, a task force operating for China’s Ministry of Commerce is said to be requesting input from the industry of additional items that need to be exempted. We saw this pattern in Trump 1.0, with China even exempting U.S. soybeans when it actually needed to buy them. The trade drama most likely will continue for some time but it appears that trade deals with South Korea, India and Japan could be announced in May. Old crop soybeans remain supported by managed money as they are quietly increasing their long in the market. Approximately 90K in my opinion. That said the higher the price, the less competitive exports are into China. This tells me that beans are following bean oil on the way up. Funds added 8 to 10 K contracts long this week in bean oil, although some light end of week profit taking emerged today. A trade deal with India that could lead to increased exports is one of the reasons soybean oil led the complex higher this week along with crush margins. More importantly the hope of a subsidy rescue via a bigger biodiesel mandate is gaining steam as traditional fossil energy companies have moved into the renewable fuel space. It is my opinion to seek a return on their investment, they might press the Trump administration to create an aggressive mandate for continued use and possible increases in renewables that would increase domestic demand of bean oil. Lots of ifs and maybes here so in my view guidance needs to come soon to provide clarity in my opinion. Technically into next week resistance for July soybeans comes in at 1061 to 1064. Closes above could push the market to 1075. A close above there and its major trendline resistance at 10.92. If we clear that area, market will test 1101 and possibly 10% higher on year at 1110. Support is the 50-week moving average at 1042. A close below and its katy bar the door to 1023 and possibly 998.
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Sean Lusk
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