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Food Prices Surge on Higher Soy Bean Meal Prices

David Becker
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Soy bean meal prices continued to edge higher on Friday and are poised to test resistance near 487. Estimated demand for beans has climbed as investors perceived that a rebound in China will drive prices higher. Hedge fund traders have added to long position in futures and options according to the latest industry report.

Managed money is adding to long futures and options position according to the latest commitment of traders report released for the week ending February 18, 2014. According to the CFTC hedge funds added 3K contracts to long futures and options position while decreasing short postion by 1300 contracts. Soy beans have also seen a sharpe rise in long position by managed money. The COT report showed and increase of 15K contracts in soy beans and a decrease in short position by 4K contracts. Longs now outweight shorts in bean mean by 4 to 1.

Economic data in the US has created headwinds for bean meal, but Thursday’s better than expected durable goods report, should help commodities gain further traction. Durable goods orders, which are items that are forecast to last 3-years or more declined by 1% in January after declining 5.3% in December. Economists had expected a decline of 1.5% last month after December’s previously reported 4.2% decline.

Durable goods order x-transportation rose last month as did a gauge of future business spending. The Commerce Department reported on Thursday that durable goods orders excluding transportation rose 1.1 %, the largest increase since May, after falling 1.9% in December. Economists had expected this category to fall 0.3%.

The technical picture on bean meal is positive as prices moved toward resistance near the September highs at 487. Support on the March contract is seen near the 10-day moving average at 456. Momentum on the futures contract is strong as the MACD (moving average convergence divergence) index prints in positive territory with an upward sloping trajectory. The index generated a buy signal in early February as the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread. The RSI (relative strength index) has remained steady at the top end of the neutral range printing near 66, slightly below the overbought trigger level of 70.

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