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Soybean Oil Breaks Lower Hits 4-Year Low

David Becker
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Soybean oil prices moved to a new low on Wednesday, breaking through support levels as downward pressure from soybean generated headwinds for oil prices. A good weather patterns in Argentine soybean growing areas have created downward pressure for bean futures prices. The term structure of bean oil continues to widen, and with lower prices the carry on the trade is broadening.

According to the most recent commitment of traders report, hedge funds traders reduced long positions in the latest week. According to the CFTC, managed money reduced long position by1900 contracts and increased short position by 700 contracts.

The term structure of bean oil has moved further into contango as prices have moved lower. The greater contango reflects the declining demand relative to increasing supply for bean oil. The current term structure is in full carry generating an arbitrage for those who wish to store bean oil and forward sale using the March futures contract. The combination of costs for storage and financing are less that the profit attainable from capturing the term structure.

The January bean oil contract moved lower on Monday breaking through support levels and poised to test the monthly lows near 36 cents per pound, made during the heart of the financial crisis in 2010. Momentum on the futures contract is negative with the MACD (moving average convergence divergence level printing in negative territory after generating a sell signal in mid-December. The trajectory of the MACD is negative pointing to lower future price action.

The RSI (relative strength index), which is an oscillator that measures overbought and oversold levels, is accelerating lower with price action reflecting negative momentum. The only caveat is that the RSI is printing near 29, which is below the oversold trigger level of 30 and could foreshadow a short term correction in price action.

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