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Cold Weather Lifts Grains

David Becker
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Bean oil prices edged lower on Friday in early trading consolidating some of the huge gain seen in oil seed over the past 6-weeks. Prices have climbed nearly 22% since the beginning of February, as strong demand for beans has driven the entire complex higher. Hedge fund traders continued to purchase contracts of beans and bean oil while reducing short positions in each product.

Hedge fund traders continued to reduce short positions in bean oil according to the latest commitment of traders report released for the week ending March 4, 2014. According to the CFTC managed money reduce short position in bean oil by 8500 contracts while increasing long position in futures and options by 5200 contracts. Traders also increased long futures and options position in soy bean by nearly 7700 contracts in the latest week.

The term structure in bean oil has changed drastically in the past month reflecting the increasing demand for vegetable oils. The differential between the May 2014 and July 2014 contracts moved to 10 pips from nearly 35 pips 6-weeks ago. The change of nearly 71% in the term structure has pushed the differential closer to backwardation, and reflects increasing demand for bean oil product.

Prices remain well supported above a downward sloping trend line that shows a breakout near 42.70. This seems to coincide with the 10-day moving average. Resistance is seen near 46 cents per pound. Momentum on the May contract is robust with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory. The RSI (relative strength index), which is an oscillator that measures momentum as well as overbought and oversold levels, has remained steady, printing near 76, which is well above the overbought trigger level and could foreshadow an imminent correction in price action.

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