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Grains and Vegetable Oils Correct

David Becker
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The combination of frigid weather and tensions in the Ukraine pushed bean oil prices higher by 18% from the beginning of February until the beginning of last week, but as the weather started to thaw and tensions eased, prices moved lower and could retrace most of February’s gains. The decline in bean oil prices over the last week might have caught many hedge fund traders off sides, as a plethora lined up on the long side according to the latest industry report.

Tensions in Ukraine enabled vegetable oil prices to soar during most of February. Ukraine is the world’s biggest producer of sunflower oil, of which India is the biggest buyer. Wholesale prices in India have jumped 10% in the past month as shipments from Ukraine have been delayed, and the rise spilled over into bean oil prices.

Hedge fund traders added to long positions and drastically reduced short position according to the latest commitment of traders report released for the week ending March 11, 2014. According to the CFTC, managed money increased long futures and options position in bean oil by 12K contracts and simultaneously reduced short position by 17K contracts. Longs in bean oil futures and options now outweigh short by 66K to 40K which could generate a long liquidation in the near future.

Momentum on bean oil has decreased and is now negative as the MACD (moving average convergence divergence) index has generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) has crossed below the 9-day moving average of the spread. The index moved from positive to negative confirming the sell signal. Support is seen near 40 cents per pound while resistance is seen near the 10-day moving average at 43.43.

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