We’ve written extensively about the macroeconomic forces at work that are globalizing the food industry.
The result of the growing appetites of an increasingly affluent Asian population is pushing the prices of finished high end products like filet mignon and pork tenderloin as well as the rough inputs like cattle and hogs through the roof.
One of the primary factors in the exaggeration of this relationship, this year in particular, are the cheap feed prices that have made it more profitable than ever to hold back livestock for delivery at higher weights and profits. The rebuilding of the hog supply due to the porcine epidemic diarrhea that wiped out 10% of U.S. hogs as well as rebuilding a
U.S. cattle herd up from 50-year lows has created persistent buying pressure in the soybean and corn markets on this year’s decline.
Soybean Action
Focusing on the soybean market today, the commercial traders’ actions clearly reflect both the traders’ acknowledgement of the global food supply situation as well as the relative value of this year’s grain prices. Commercial traders have been eager to lock in as much forward supply as possible. The soybean market traded fairly sideways between $14.50 and $15.50 through the mid-May planting season and has declined by more than one-third since. Commercial traders have been net buyers in 12 out of the last fourteen weeks since the market’s peak in May adding more than 167,000 contracts along the way. We’ve created this commercial soybean trader chart to illustrate their persistence.
The soybean market’s decline and the persistent commercial trader buying have put us on the lookout to buy into their market expectations. Fortunately, our final trigger based on short-term momentum has only stuck us on the long side of the market once during this decline. As always, our protective stop was placed at the swing low which kept our loss small. Friday’s action is providing us with another opportunity.
Key Levels
Friday’s reversal was strong enough to push our short-term momentum indicator up out of the oversold region and trigger a COT buy signal. It also created a bullish technical divergence as Friday’s low made a higher bottom on our momentum indicator while the futures made new lows. We’ll take advantage of these factors to try the long side of the soybean market. Use the overnight softness to buy in at a discount and place a protective sell stop at Thursday’s low of $10.0125. We’ll start to feel the market has well and truly turned with a close in the November soybean contract above $10.40.
