The soybean meal futures have been sliding sideways to lower for the last seven months. Historically, this makes all the sense in the world as the harvests are in and supply and demand become the driving factors of price rather than weather and growing concerns. The shift towards planting and summer markets changes the equation and brings us to where we currently stand. July soybean meal has finally executed the test of its support and finds itself strengthening heading into its strongest seasonal period.
Commercial traders in bean meal futures have been slowly but steadily building their net position. In this case, it appears to be a matter of producers sitting on their hands with regards to hedging this year's crop while end line consumers have come to the consensus that $300 per ton is a great buying opportunity.
We track the commercial traders as a proxy for value. It is our belief that no one knows the value of their market better than those whose lives are directly affected by its price. Furthermore, we track both their net position as well the momentum of their buying and selling. The more eager they are to act at a given price level, the more important that price level becomes. Therefore, the sloooow build over the last few months has been relatively unexciting until we got some technical action to trigger the bigger formation.
Last week's decline was driven by the emotional response to the USDA's Supply and Demand report issued on May 12th. That sharp sell off was met by commercial trader buying to the tune of 14,000 contracts. This was more than enough to signal an, "Everybody out of the pool" moment for the small speculators and has quite possibly put an end to this market's stagnation as we head into seasonal strength as noted on Moore Research's July bean meal seasonal chart below.
We believe the early damage for this market has been done. This creates a limited risk buying opportunity by placing a stop loss order near the $300 per ton support. Finally, a move back above $320 per ton would confirm the market's reversal and further fuel the anticipated seasonal strength.
