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Soybeanoil

Soybean Oil’s Red Pill Moment: The Short Signal Just Hit"You’ve been waiting, watching, wondering when the veil would lift. Today is that day." Soybean oil just crossed a threshold, one that turns theory into action. This isn't just a hint anymore; it’s a red pill moment. Today, we got the confirmation we needed: a Daily bearish momentum divergence trigger has sealed the deal. If you've been waiting for a sign, here it is—the entry point is here. Decoding the Signs from the Commitment of Traders (COT) "What if I told you that the market leaves clues? And only the most discerning see them." Our strategy isn’t based on surface-level movements but on patterns and signals that tell the deeper story. Soybean oil is primed for a down move. Let’s break down the intel: Commercials’ Short Stance Relative to their positioning over the last 26 weeks, commercials have positioned themselves heavily short. Last time they were this committed was December 2023, a setup that spelled trouble for the long side. Overvaluation Across Key Metrics Against gold and treasuries, soybean oil is flashing overvalued based on our WillVal indicator. This isn’t random; the market is overextended and vulnerable to the downside. Bearish “Pinch” Confirmation Two weeks ago, a Bearish Pinch formed on ADX/Stochastic—one of the most reliable indicators of an impending pullback. Today’s momentum divergence confirms it. The alignment is uncanny, if you’re paying attention. Seasonal Trends: Down to December True Seasonal points down, favoring the bears. It’s as if time itself is backing this move. Supplementary Indicators Are Aligned Insider Acc/Dis, %R, and Stochastic are all signaling in unison: the tide is turning. Each of these alone is meaningful, but together, they mark a rare convergence that few recognize. "The trigger is pulled, and now we walk the path." This isn’t a drill. Today’s bearish momentum divergence confirmation is the daily trend trigger we needed, a line in the sand between potential and execution. For those who see beyond the surface, this is your sign to take action. To uncover more of these market signals and gain the insights no one else is sharing, follow @Tradius_Trades. Because once you’re in on the code, everything changes.
CBOT:ZLZ2024Short
by Tradius_Trades
USD Weakness and its OpportunitiesThe USD may be weaker, but it does mean that its bad. Because a softer USD, some assets are starting to trend higher. We will do a comparison between the USD and some of these assets or commodities, to see how reactive they are when the USD has trended lower in the recent months. Soybean Oil Futures & Options Ticker: ZL Minimum fluctuation: 1/100 of one cent (0.0001) per pound = $6.00 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZR1!Long
by konhow
2
ZL. Zigzag for wave 2.Working on the idea of a Zigzag pattern for Wave ((2)) in the soybean oil market. In Elliott Wave Theory, a Zigzag pattern is a corrective wave pattern that usually consists of three waves: Wave A: This is the initial decline from 42.68 in 5 wave sequence, setting the stage for the corrective pattern. Wave B: 3 wave corrective rally that follows Wave A. Wave C: This is the final leg of the Zigzag pattern, typically extending beyond the end of Wave A. Wave C is always either an impulse or a diagonal. My interpretation of the current structure is that Wave C has developed into an expanding diagonal and may possibly end at 3956. Invalidation for this idea = 3956
CBOT:ZL1!Long
by pengiran-
1
Soy Bean Cash CFD Bullish Side Money Heist PlanHola ola Robbers / Money Makers & Losers, This is our master plan to Heist SOY BEAN Cash CFD Market based on Thief Trading style Technical Analysis.. kindly please follow the plan I have mentioned in the chart focus on Long entry. Our target is Red Zone that is High risk Dangerous level, market is overbought / Consolidation / Trend Reversal at the level Bearish Robbers / Traders gain the strength. Be safe and be careful and Be rich. Note: If you've got a lot of money you can get out right away otherwise you can join with a swing trade robbers and continue the heist plan, Use Trailing SL to protect our money. Entry : Can be taken Anywhere, What I suggest you to Place Buy Limit Orders in 15mins Timeframe Recent / Nearest Swing Low Stop Loss : Recent Swing Low using 2h timeframe Warning : Fundamental Analysis comes against our robbery plan. our plan will be ruined smash the Stop Loss. Don't Enter the market at the news update. Loot and escape on the target 🎯 Swing Traders Plz Book the partial sum of money and wait for next breakout of dynamic level / Order block, Once it is cleared we can continue our heist plan to next new target.
VANTAGE:SOYBEANLong
by Thief_Trader
Inflation & Agricultural Prices - On the Rise Again Inflation is expected to rise again because the prices of staples such as wheat, rice, corn, and soybean meal have been increasing over the last two months. Additionally, we've seen a 20% increase in soybean meal prices since the low in February. Chicago SRW Wheat Futures & Options Ticker: ZW Minimum fluctuation: 1/4 of one cent (0.0025) per bushel = $12.50 Soybean Meal Futures & Options Ticker: ZM Minimum fluctuation: 0.10 per short ton = $10.00 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZW1!Long
by konhow
7
A technical overview of Soybean Oil Since our last analysis of Soybean Oil, the commodity has completed its head and shoulders pattern, now trading at the resistance formed by the previous neckline. Concurrently, we observe an RSI divergence, where the RSI prints lower highs while the prices chart higher highs. This divergence is generally viewed as a bearish indicator, hinting at possible price declines. When paired with decreasing volume, the case for price exhaustion at this juncture becomes more compelling. The Price & Volume Profile chart serves as another essential tool in pinpointing critical zones. The highlighted POC (‘point of control’) zone represents the price level with the highest frequency of trades. Historically, this has acted as a pivotal support and resistance level for Soybean Oil, demarcating regions of consolidation before prices venture either upwards or downwards. The chart also highlights the volume traded at the different levels as denoted by the volume number at the different price levels. Notably, the current price level showcases a significant volume zone, with the largest volume transacted there. Looking at the 50 & 200-day moving averages we observe a golden cross which signifies bullishness. But not on the 100 & 200-day moving averages. On a relative value basis, we can also compare Soybean Oil to its substitute, such as crude palm oil. Here we see 2 defined regimes pre-2021 and post-2021 where the ratio of the two products significantly increased, suggesting that Soybean Oil became relatively pricier than Crude Palm Oil. We have previously delved into this topic in our article “ Fading the Soybean Oil Premium ” where we anticipated a decline in this ratio. Subsequently, this ratio did correct to the 0.06 mark, only to experience a rapid rebound. This surge was attributed to Soybean Oil appreciating at a faster rate than Crude Palm Oil. Another metric involves contrasting Soybean Oil with its upstream and downstream derivatives: Soybean and Soybean Meal. Once more, we see prices tending to move in tandem until 2021, after which the ratio of Soybean Oil to both Soybean Meal and Soybean underwent a marked shift. With the ratio's support distinctly outlined by pre-2021 resistance, this ratio can be wielded as a metric to identify when Soybean Oil is relatively overpriced compared to its up and downstream products. In conclusion, a blend of technical indicators seems to point towards more downside for Soybean Oil, such as the RSI divergence and declining volume. Also, prices stuck in the POC have generally preceded breakouts and on a relative value basis, Soybean Oil seems over-extended. We can express this bearish view on soybean oil via a short position on the CME soybean Oil futures at the current level of 63.29, with a stop at 67.50 and take profit at 51.00. Prices are quoted in cents per pound and each $0.0001 increment per pound in the Soybean Oil futures contract is equal to 6.00$. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com
CBOT:ZL1!Short
by inspirante
What does El Niño’s return mean for commodities?The El Niño weather phenomenon is back on the radar. A new update from the World Meteorological Organization (WMO) forecasts that there is a 90% probability of the El Niño event continuing during the second half of 2023. What is the El Niño phenomenon? The El Niño Southern Oscillation (ENSO) is an oceanic-atmospheric phenomenon with origins in abnormal variations in surface water temperatures in the Central and Eastern Pacific (Latin American coast). It comprises two opposing phenomena (La Niña and El Niño) that historically occur every 2 to 3 years. La Niña brings colder, wetter weather (lasts between 1-3 years), while El Niño brings warmer, drier weather (lasts between 9-12 months). Typical impacts of El Niño When El Niño starts picking up, trade winds slow down and the warm water near Asia starts moving back eastward across the Pacific, reaching the coast of South America. The drift in warm water also moves evaporation and rain such that southeast Asia and Australia tend to get drier while Peru and Ecuador tend to see more precipitation. El Niño typically picks up over the summer and shows its strongest effects over the winter in the Northern Hemisphere. However, the characteristics of the El Niño vary according to its timing and amplitude. World sees hottest July on record El Niño weather disturbances, which affect the entire Indo-Pacific region, lead to heatwaves and droughts. This is why the developing El Niño is likely to amplify the negative effects of climate change in Asia-Pacific, South and East Africa and the Americas. So, it comes as no surprise that large parts of the Northern Hemisphere have witnessed intense heat and devastating rainfall in the first half of 2023. July is expected to be the hottest month on record1; China set a new national daily temperature record in July and was hit by record-breaking rainfall at the start of August2. Large parts of the USA were also gripped by extensive heatwaves, with high temperatures in numerous places3. Canada experienced its worst wildfire season on record, as did parts of the Mediterranean. Implications for agricultural commodities The growing of agricultural products is sensitive to weather patterns. For some crops, El Niño could boost production, while for others it could damage production. Should the weather event intensify, it could be a significant catalyst for price gains in cocoa, soybean oil, sugar and grains. Meanwhile it could be price negative for cotton and coffee. We analysed prices of agricultural commodities over the past 11 episodes of El Niño’s, dating back to the 1960s. In 8 of the last 11 occurrences, wheat, soybean oil and cocoa traded higher by an average of 14%, 6% and 16% respectively, 6 months after the El Niño started. In 9 out of the past 11 occurrences, soybean oil and cocoa traded higher. Soybean oil benefits from tight palm oil supply In the past, El Niño has impacted the supply of agricultural commodities such as palm oil, sugar, wheat, cocoa, and rice. Based on the local weather agency Badan Meteorologi Klimatologi (BMKG)’s reporting, approximately 40 percent of Indonesia’s oil palm area experienced below-normal precipitation in June 20234. The BMKG also indicated that El Niño weather patterns are at weak-to-medium intensity and are expected to peak in August to September 2023. The shortage of palm oil tends to have a knock-on effect on demand for close substitutes such as soybean oil. This comes at a time when the escalation of attacks between Russia and Ukraine is also raising concerns on the supply of edible oils from the Black Sea region. Escalating tensions and the blockade of the Black Sea shipping routes are likely to aggravate the global edible oil and grain supply situation. Rice supply at the mercy of El Niño Dry weather has been threatening crops in the world’s second largest rice exporter, Thailand, with the country facing widespread drought conditions from early 2024. The government has already asked farmers to restrict their planting to just one crop this year. While monsoon rains have brought some relief to rice fields in parts of India (the world’s largest exporter), the country banned exports of non-basmati white rice5. Tightness in the rice market could have a knock-on impact on other staple substitutes, such as wheat. Cocoa benefits from tight supply The return of El Niño conditions is also supporting cocoa because the weather phenomenon tends to bring hot and dry conditions to West Africa. Cocoa growing is concentrated in Africa, with approximately 70% of production in the continent. Historically, El Niño has led to production shortfalls as the weather phenomenon leads to drier spells in Africa during key growing periods. This year, farmers in Ivory Coast, Ghana and Nigeria have reported signs of black pod disease, which causes cocoa pods to turn black and rot. That could also affect the quality or curb the output of beans. The cocoa market is expected to be in a third year of deficit in the 2023-24 season which should keep cocoa prices well supported. Conclusion While an El Niño event is not guaranteed (it has less than a hundred percent probability), and the strength or the duration of the event remain uncertain, it comes on the heels of war which has caused significant disruption to the flow of grains and oilseeds. Inventories of many agricultural commodities (wheat, corn, soybean oil and cocoa) are trading below their 5-year averages, making it harder to absorb a production shock6. El Niño could, therefore, be price supportive for these agricultural commodities. Sources 1 Source World Meteorological Organization. 2 Source China Meteorological Administration. 3 Source US National Weather Service. 4 Source United States Department of Agriculture, as of 3 August 2023. 5 Source Indian Ministry of Consumer Affairs as of 21 July 2023. 6 Source United States Department of Agriculture, as of 31 July 2023. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
N
by aneekaguptaWTE
Trading with Soybeans, Soybean Meal and Soybean Oil FuturesCBOT: Soybean ( CBOT:ZS1! ), Soybean Meal ( CBOT:ZM1! ), Soybean Oil ( CBOT:ZL1! ) This is the second installment on CBOT Soybean Complex. If you have not read the first piece, please click the link at the end of this idea. Let’s start with a discussion of two reports followed by soybean market participants. The Crop Report U.S. Department of Agriculture (USDA) closely monitors agricultural market conditions and publishes the monthly World Agricultural Supply and Demand Estimates (WASDE). WASDE, commonly known as the Crop Report, provides a global view of key agricultural products including wheat, rice, coarse grains (corn, barley, sorghum, and oats), oilseeds (soybeans, rapeseed, palm), cotton, sugar, meat, poultry, eggs, and milk. The Crop Report is the most important report followed by agricultural commodities traders. What’s the key takeaway from the April 2023 Crop Report on Oilseeds? U.S. soybean supply and use forecasts for 2022/23 are unchanged. However, relative to 2020/21, planted acreage is higher while export is lower. Global 2022/23 soybean supply and demand forecasts on lower production, crush, and exports. Global production in current crop year is reduced by 5.5 million tons. Overall, the April WASDE shows plentiful supply, weakened demand and higher inventory, the recipe for price trending down. CFTC COT Report Commodity Futures Trading Commission (CFTC) publishes the Commitments of Traders (COT) reports and provides a breakdown of open interest for futures and options markets. It categorizes the reportable open interest positions into four classifications: • Producer/Merchant/Processor/User: An entity that predominantly engages in the production, processing, packing, or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities. • Swap Dealers: An entity that deals in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swap transactions. • Managed Money: Commodity trading advisor (CTA) or Commodity pool operator (CPO). They are engaged in organized futures trading on behalf of clients. • Other Reportable: Every other reportable trader that is not placed above. What’s the key takeaway from the May 2nd COT report on Soybean/Meal/Oil Futures? o Soybean futures ZS open Interest: 601,051, down 4.7% from previous week; o Managed Money increased ZS short position by 80.1%; their long/short ratio is 2.1. Note that the ratio was 8.3 on April 18th. This indicates that speculative traders are no longer bullish on soybeans. o Soybean Meal ZM open Interest: 408,013, down 2.9% from previous week; o Managed Money decreased ZM long position by 22.3%; their long/short ratio is 3.7. Note that the ratio was 7.9 on April 18th. Again, this is a bearish signal. o Soybean Oil ZL open Interest: 472,547, up 0.6% from previous week; o Managed Money increased both long and short positions modestly; their long/short ratio is 0.7, the same with April 18th. Popular Soybeans Futures Trading Strategies – Explanation and Illustration There are different types of traders in the soybean futures market: Producers, Grain Elevator (Storer), Processor, Livestock Farmer (User), and non-commercial traders. We will discuss how they use the futures market, each with a hypothetical trade example for illustration purpose. Investor Non-commercial traders are not participants in the soybean industry. They hold a market view and hope to profit from such view through futures trading. Investors could draw ideas from futures price chart, the Crop Report, and other relevant market information. Case study #1: Directional Trade with Stop Loss Market information 1) April WASDE shows plentiful supply, weakened demand and higher inventory; 2) Following the release of WASDE, soybean price has been trending down; 3) News surfaced that Smithfield, the largest US hog producer, plans to liquidate 10% of its sow. This indicates lower soybean meal demand in the future. Trade Setup To express his market view, on May 10th, a trader sells one July 2023 contract (ZSN3) at 1412’6/bushel ($14.1275), which gives the contract a notion value of $70,637.5. He deposits $5,000 margin on his futures account. At 7.1% of the cost, he participates in the price exposure for 5,000 bushels of soybeans. The use of leverage, in this case by 14.1 times, is an advantage of cost-effective trading with futures contracts. Potential Profit and Loss 1) In June, ZSN3 declines to 1350’0 ($13.50), the trader would gain $3,137.5 = ($14.1275-$13.50) x 5,000. Using the original margin deposit as a cost base, this short futures trade would potentially realize 63% profit, excluding trading fees; 2) If the soybean market rallies to 1480’0 ($14.80), the trader would lose $3,362.5, or a return of -67%; 3) Our trader could set a stop loss at 1450’0 ($14.50), to cap the maximum loss at $1,862.5 and avoid margin calls. An outright trade with futures contract allows the trader to profit from a correct market view. Leverage built into futures could significantly enhance the profitability, while stop-loss could limit the exposure if the view proven to be incorrect. Soybean Farmer and the Production Hedge When a US soybean farmer plants the crops in April, he is said to have a Long Cash position. The farmer is exposed to the risk of falling soybean prices during the November harvest season. To hedge the price risk, our farmer could enter a Short Futures position now, and buy back the futures when he is ready to sell the crops. The effective sales price equals spot price in November plus gain/loss in the short futures position. Since the cash market and futures market are highly correlated, loss (gain) in the cash market will be largely offset by the gain (loss) in the futures market. Case study #2: Production Hedge (Short Hedge) Market information 1) The farmer planted 1,000 acres of soybeans in his Central Illinois farm; 2) Total production cost per acre is estimated at $859, which includes variable costs (seed, fertilizer, pesticide), overhead (building, storage, machinery) and land; 3) Yield per acre is estimated at 69 bushels. His cost per bushel will be $12.45; Trade Setup On May 10th, ZSX3 is quoted at 1254’2 ($12.5425). The farmer expects to sell 69,000 bushels. Since each ZS contract has a notional of 5,000, he needs to sell 14 lots of ZS contracts. Soybean basis in Greene County, Illinois is estimated at $0.20. The Hedging Effect 1) The farmer effectively locks in the sales price in April for his November soybean crop at: $12.5425 (futures) + $0.20 (basis) = $12.7425; 2) Production hedge helps our farmer to protect a profit margin of 29.25 cents =($12.7425 - $12.45) per bushel, or $20,182.5 for his entire crops. The farmer is left with basis risk. In the context of commodity futures trading, basis refers to the difference between the spot price of a commodity and the price of a futures contract for that same commodity. Basis risk is usually smaller than outright price risk. Grain Elevator and Futures Rollover Strategy After the crop is harvested, farmers or merchandisers usually store the soybeans in a grain elevator and wait for the right time and price to sell. Soybeans could be stored for a year but would incur monthly storage costs. The decision to store depends on whether expected future price gains outweigh the storage costs. A merchandizer is exposed to the risk of falling soybean price, which would cause his soybean inventory (old crop) to decline in value. To hedge the price risk, he could employ a rolling futures strategy. Case study #3: Rollover Front-month Soybean Futures “Rollover” refers to the process of closing out all positions in soon-to-expire futures contracts and opening contracts in newly formed contracts. The rollover process impacts market volatility, prices, and volume. Trade Setup 1) Sell 14 lots of July contract ZSN3 at 1412’6 ($14.1275) on May 10th; 2) At any point before expiration, if we decide to sell soybeans in the spot market, we could exit our futures position by buying 14 lots of ZSN3 at prevailing price; 3) If we plan to hold our inventory for a longer period, we will buy back ZSN3, and simultaneously sell 14 lots of August contract (ZSQ3); 4) ZSQ3 is quoted 1345’4 ($13.455) on May 10th. If you hold the soybean from July to August, you will incur extra storage cost, but would get 67.25 cent less per bushel. This is clearly very bearish. The Hedging Effect: Rolling futures positions allows our merchandizer to extend his hedge beyond original futures expiration. You may ask, why not use a longer-dated contract to begin with, say July 2024? This is because the front month contract is usually more liquid. It is easier to put the hedge on and off quickly. By sticking with liquid nearby contracts, we could avoid the cost of price slippage generally associated with less liquid deferred contracts. Soybean Processor and the Board Crush In soybean industry, “crush spread” is the market value of meal and oil byproducts subtracted by the cost of raw soybeans. In the cash market, the relationship between prices is commonly referred to as the Gross Processing Margin (GPM). In the futures market, the crush value is an inter-commodity spread transaction in which Soybean futures are bought (or sold) and Soybean Meal and Soybean Oil futures are sold (or bought). Soybean crush spread is also called the Board Crush. Case study #4: Soybean Crush Spread Trade Setup 1) The November-December Board Crush (buying November Soybean futures and selling December Soybean Meal futures and December Soybean Oil futures) is used to hedge new-crop gross processing margins; 2) CME Group facilitates the board crush that consists of a total of 30 contracts: 10 Soybean, 11 Soybean Meal, and 9 Soybean Oil; 3) Implied Soybean Crush (SOM: Z3-Z3-X3) is quoted at 172’6 ($1.7275) on May 10th. Each contract has a notional of 50,000 bushels and is currently priced at $86,375; 4) If we process 100,000 bushels a month, we would short 2 board crushes. On May 10th, the margin for this spread is $1,650 each. The Hedging Effect: Board Crush enables processors to lock in his operating profit. Livestock Farmer (Soybean User) and the Hog Feeding Spread Livestock farmers buy corn, soybean meal and other ingredients to produce animal feed. For example, hog farmers’ gross profit is represented by gross feeding margin, also known as the hog feeding spread, which is the value of lean hog less the cost of weaned pig, corn, and soybean meal. Therefore, hog farmers are exposed to the risk of rising ingredient costs. To manage price risks, they could trade the hog feeding spread, which isa long hedge by selling CME lean hog futures (HE) and buying CBOT corn (ZC) and soybean meal (ZM) futures. A typical hog feeding spread is expressed as: Hog Feeding Spread = 7 x HE – 3 x ZC – 1 x ZM Case study #5: Hog Feeding Spread Market information 1) USDA daily hog and pork report shows that cash market hog price averaged $73.59/cwt nationwide on May 9th, up 78 cents from prior week; 2) Cash hog is down 31.4% year-over-year. However, it seemed to bottom at $66 in mid-April and rebounded after the news of Smithfield sow liquidation. 3) Our farmer expects hog prices to rise faster than feed prices in the next few months. To capture an expanding margin, he plans to long the hog spread. Trade Setup: For every 280,000 pounds of lean hogs (approximately 1,120 pigs): • Long 7 lean hogs futures HEM3 at 0.84575/lb., giving a total notional value of $236,810, as each contract has 40,000 pounds (lb.); • Short 3 corn futures ZCK3 at 646’4 ($6.465)/bushel. Each ZC contract has 5,000 bushels of corn, leaving this leg of trade at $96,975; • Short 1 soybean meal futures ZMK3 at $415.0/short ton. Each ZM contract has 100 short tons of soybean meal, leaving this leg of trade at $41,500; • The combined total, $98,335, represents the gross margin of raising 1,120 hogs, or about $87.8 per pig. The Hedging Effect: It takes 5 months to grow a piglet to marketable weight. Factoring in breeding sows, the full production cycle for hog farmers could last 1-1/2 years. Pork prices and feed costs could vary significantly during this period. Hog Feeding Spread enables hog producers to lock in their operating profit. Spread Trading in CBOT Soybean Oil and BMD Crude Palm Oil Vegetable oils are the most crucial cooking ingredients in the world. Soybean oil and palm oil dominate the global edible oil marketplace with 2/3 of market share. Soybean oil and palm oil are considered substitute goods because food processors often switch between the two as the prices fluctuate. Soybean oil and palm oil are driven by different market fundamentals. World soybean production is centered mostly in the U.S., Brazil and Argentina, and most palm oil comes from Indonesia and Malaysia. A drought in the U.S. or in South America could drastically alter soybean oil supply one year, while disease in Southeast Asia could affect palm oil supply the next year. This can create tremendous volatility in the spread relationship. The CBOT Soybean Oil futures (ZL) consists of 60,000 pounds, equivalent to 27.22 metric tons. The BMD Crude Palm Oil (FCPO) futures contract is 25 metric tons (mt). Case study #6: Soybean Oil/Palm Oil Spread Observation: Soybean oil and palm oil markets have been in decline since July 2022. In the past two months, soybean oil drops by a faster rate compared to palm oil. There could be plausible cause for the abnormal trend. However, if the relationship were to reverses back to normal, the spread will be enlarged. If an investor holds this view, he could long the spread by buying CBOT soybean oil and selling BMD crude palm oil. Trade Setup • Provided ZL at $0.5255/lb. and FCPO at MYR 3570/mt with prevailing USD/MYR exchange rate at 4.46, the ZL/FCPO spread could be derived at: • ZL = $0.5255 (per lb.) x 2204.622 (lbs. per mt) = $1,158/mt • FCPO = MYR 3570 / 4.46 /mt= $800/mt • ZL/ FCPO spread = $1,158/mt -$800/mt=$358/mt Potential Profit and Loss 1) For an investor, a profit could be realized if the spread gets bigger. He would incur a loss if the spread narrows instead. The USD/MYR exchange rate could affect the trading result; 2) For commercial hedgers such as edible oil processors, hedging would allow them to maintain stable production formulas even though oilseed spot prices change unexpectedly. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZL1!Long
by JimHuangChicago
A Primer on Soybean Crush SpreadSoybeans are one of the most versatile and important agricultural commodities in the world, consumed extensively by humans, livestock, and industry. Soybean prices have an undeniable impact on the global economy and their importance is only increasing with the rapidly growing bio-diesel industry. In our previous paper Heavy Exports Weighing Down Soybeans , we described factors affecting the supply of Soybean and their seasonality. Supply is largely driven by harvest cycles and crop yields. Demand can shift for multiple reasons. Live stock feed, Cooking oil and Biodiesel form the largest demand source for Soybean. These are all derived from the two by-products of Soybean – Soybean Meal (“Meal”) and Soybean Oil (“Oil”)). During Soybean processing, the seed is crushed to separate the oil from the meal. These by-products can be traded as separate commodities. Traders can harvest gain from the shifting relationship between the by-products and soybean using the crush spread. This paper will describe the crush spread, its computational methodology, and the methods for investors to harvest gains from it. The paper will also look into the factors defining the crush spread in 2023. The Crush Spread The Soybean crush spread refers to the value of Soybean’s gross processing margin, which is the difference between the value of the outputs (Meal Price + Oil Price) and the value of the inputs (Soybean Price). The crush spread is traded on the cash and futures markets and is often used by Soybean processors to hedge their margins for the actual process. It can also be used to harvest gains from the shifting dynamics between Soybean and its byproducts. Factors That Affect the Spread The crush spread can be influenced by the price of soybeans, the demand for its byproducts and the cost of production. Production costs can vary due to energy prices, labor conditions, carryover stock, and health of supply chains. Demand for by-products is driven by some common factors such as macro-economic conditions but also by factors unique to each commodity. Meal is used for livestock feed while Oil is used as a cooking oil and as biodiesel. Livestock feed demand is driven largely by China to feed its large swine population. Like soybean supply, feed demand also shows high seasonality. Due to a shortage of grass in the winter, Soybean Meal is consumed during these months leading to higher demand. Additionally, unlike other commodities, Soy Meal cannot be stored for longer than 3 weeks. So, during the US harvest (October), Soy Meal prices plummet due to oversupply. Cooking oil demand is sensitive to the supply and price of Palm oil, which is also widely used for cooking. Both can be used interchangeably; they are the so called substitute products. So, the decision of which product food producers choose depends on prices, supply, and import/export policy decisions. Moreover, Soybean Oil is far more suitable for the production of biodiesel than Palm Oil. This is why Soybean Oil generally trades at a premium of $100-$150 tonnes to Palm Oil. In the US, Soybean Oil demand for biodiesel is even higher owing to a fast-growing renewable diesel industry. Shifting Dynamics of Soybean By-Products Downbeat Macro With recession risks and inflation running high in many countries, the macro-economic outlook is downbeat. This weighs on the demand for Soybean and its by-products, resulting in lower prices and a narrowing spread. China’s Reopening China’s reopening from pandemic restrictions last year is in full swing. Although initial recovery was sharp, conditions have started to cool due to downbeat macroeconomic conditions weighing on export demand and still weak domestic demand. China’s large swine population is a major driver of meal demand. Heading into the winter, in case domestic demand starts to recover, it would lead to far higher meal demand and prices resulting in a narrowing spread. Rising Demand for Soybean Oil In the past, crush demand was driven largely by demand for Meal, Oil was considered a surplus without enough uses. However, rising demand for green energy across the globe and tax incentives for producers have led to a sharp increase in demand for Soybean oil in the past few years, particularly in the US. Biodiesel production capacity nearly doubled between 2021 and 2022. Since then, markets have normalized with higher planting of crops and increased Soybean crushing capacity installed. Despite the downbeat economic conditions, demand for Soybean Oil is expected to increase 4.9% this year after surging 6.5% last year, according to the USDA. With higher demand for Soybean Oil, crush demand will also increase. This would result in a change in the price relationship between Meal and Oil as well as a narrower crush spread due to higher volumes. Harvesting Profit from Crush Spread Investors can take a position on the crush spread in a capital efficient manner using CME’s Soybean (ZS), Soybean Oil (ZL), and Soybean Meal (ZM) futures. CME offers margin offsets for a crush spread position using these contracts. In addition, the Soybean crush can be executed on CME Globex as a single trade. Each of these 3 contracts are quoted in different units. ZS is quoted in cents/bushel. ZM is quoted in dollars/short ton. ZL is quoted in cents/pound. As such, in order to calculate the value of the spread, the price of each contract needs to be converted to cents/bushel. A bushel of Soybean (60 pounds) yields 11 pounds of Soybean Oil and 44 pounds of 48% protein Soybean Meal. The conversion factors are given below Soybean Oil per bushel: ZL Price x 0.11 Soybean Meal per bushel: ZM Price x 0.022 Crush Spread ($/bushel) = (Soybean Oil per bushel + Soybean Meal per bushel) - ZS Price/100 As per each contract's exposure size, a long crush spread position using CME futures comprises long eleven (11) Soybean Meal futures contracts, long nine (9) Soybean Oil futures contracts, and short ten (10) Soybean futures contracts. This position would normally require a margin of $67,625 for the nearest month contracts. However, with the 88% margin offset, investors can go long on the crush spread with exposure to 50,000 bushels for just ~$8,115 in margin. Alternatively, investors can also get direct exposure to the crush spread using CME’s options on the Soybean Board Crush Spread. Each contract gives exposure to 50,000 bushels. Example Trade Like Soybean prices, the crush also shows seasonality. This is due to the combined seasonal effects of Soybean and each of its byproducts. In our previous paper, we highlighted that Soybean prices are at their lowest in October due to the US harvest. Due to a low input cost (Soybean price), Board crush expands during this time. The same uptrend can be seen during the summer months representing the harvest from Brazil and Argentina. It should be noted that seasonal trends are not a guarantee as other factors can have outsized effects on markets. A long position in the Board crush would represent a short position of 10 Soybean contracts and a long position in 11 Soybean Meal contracts & 9 Soybean Oil contracts. As an example trade, consider the board crush in Jan 2019. Going long on the board crush on 9th Jan with an entry level of USD 1.02/bushel and an exit at USD 1.37/bushel would yield 34% profit. However, investors should note that the board crush value is highly volatile, as it is derived from three volatile underlying drivers. So, stop loss needs to be adjusted for the high volatility. Positions on 9th Jan: ● Short 10 ZS1! at entry level of 924 c/bushel ● Long 11 ZM1! at entry level of USD 323.4 /short ton ● Long 9 ZL1! at entry level of 28.6 c/lb Note that the crush declined to 0.91 on 15th Feb representing downside of 10.7%: ● ZS1! at price level 921.5 resulting in profit of USD 1,250 ● ZM1! at price level 310.5 resulting in loss of USD 14,190 ● ZL1! at price level 29.95 resulting in profit of USD 7,290 Net loss: USD 5,650 Crush started to rise in April and peaked at 1.37 (+34%) on 30th May: ● ZS1! at price level 877.85 resulting in profit of USD 23,075 ● ZM1! at price level 327.4 resulting in profit of USD 4,400 ● ZL1! at price level 27.8 resulting in loss of USD 4,320 Net Profit: USD 21,155 Key Takeaways 1) Board Crush or the Crush Spread represents the Gross Processing Margin (GPM) of crushing Soybean into its by-products as quoted by cash and futures markets. 2) Board Crush allows traders to replicate the Soybean Processing Value Chain. It enables traders to harvest gains from changing crush margins while enabling crushers to hedge their GPMs. 3) Board crush can be volatile which requires astute risk management while trading it. 4) Trading board crush using CME futures is margin efficient due to substantial margin offsets (88%). MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CBOT:ZL1!Education
by mintdotfinance
6
3 Inflation Scenarios for 2023There are only 3 inflation scenarios that will happen till the end of 2023: i. Improve CPI to 2% ii. Range CPI to hover between the band of 5-8% iii. Continue to trend higher breaking above 9% Many investors believe scenario (i) & (iii) will be unlikely. 70% of the investors feel that CPI should settle unchanged from how the year started at between 5%-8%. Therefore, what is moving up then? Both the long-term and short-term? I have explained in the above video. Feeder Cattle Futures Minimum price fluctuation: 0.00025 per pound = $12.50 TAS: Zero or +/- 4 ticks in the minimum tick increment of the outright Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:GF1!Long
by konhow
2
Fading the Soybean Oil premium.Jumping straight into the technicals, we see a head and shoulder pattern on the daily Soybean Oil chart. With the neckline now broken, it seems a bearish set-up might be possible. While the technicals are important, understanding where the current price level of soybean oil is in context to other products could help us build further conviction on this idea. Firstly, the Soybean crush components. Currently, Soybean Oil trades at a pretty large premium against Soybean and Soybean Meal. Looking at the price ratios of Soybean Oil/Soybean & Soybean Oil/Soybean Meal, we also see that both have been trading out of the ‘normal’ range since 2021. With both ratios now trending lower and knocking on the door of the normal range again, we will watch closely to see what happens as we approach this critical juncture. Secondly, Soybean Oil vs its substitute, Crude Palm Oil. Again, we see Soybean Oil as the outlier here, as prices diverge from Crude Palm Oil, with Soybean Oil trading higher. Looking at the bottom chart, we can clearly see the Soybean Oil/Crude Palm Oil ratio deviating from the average range established in 2018 – 2021. With this ratio recently trending lower, a break below the upper level of the range established (dotted line) could accelerate the closing of this premium, as seen in the 2021 to 2022 period, where the ratio collapsed swiftly. The technically bearish setup, coupled with Soybean Oil’s relative valuation against the soybean complex and Crude Palm Oil on fundamental standpoint, makes a decent case to short Soybean Oil Futures from here. To express this view, we can consider setting up the trade in a few ways: 1) An outright short on Soybean Oil using the CME Soybean Oil Futures, at the current level of 60.05, setting our stop at 67 and taking profit at 42, with each 1-point move in the Soybean Oil Futures contract equal to 600 USD. 2) A spread trade between Soybean Oil & Crude Palm Oil, by taking a short position in the CME Soybean Oil Futures contract and a long position in the CME Crude Palm Oil futures contract. Such a setup could potentially allow you to stay profitable even if you turn out to be ‘wrong’ in your market views if it eventually proves that crude palm oil has been underpriced and the soybean premium is closed by crude palm oil rallying. For this trade, it is trickier to set up due to the contract size and tick value difference. Interested readers can check out one of our previous ideas where we have covered this trade in further detail: The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com www.cmegroup.com www.cmegroup.com
Editors' picks
CBOT:ZL1!Short
by inspirante
17
Crude Palm Oil’s underperformanceThis chart caught our attention recently. The Crude Palm Oil – Soybean Oil Spread (in USD per Metric Ton) is trading close to an all-time high now. This spells trading opportunity for us as Palm Oil and Soybean Oil are generally considered substitute products, which means, at a large enough price difference, buyers may hop over to buy the cheaper one. Eventually closing the price gap back to its historical mean. Further comparison of Palm Oil against its other substitute, the European Low Sulphur Gasoil Financial Futures, also shows the spread between these products near the high. A price comparison among the 3 products, Palm Oil, European low Sulphur Gasoil and Soybean Oil underscores this price disparity even clearer. The prices of the 3 products have generally trended together, up until July 2022 when Palm Oil started to underperform. Stepping back into the macro side, some potential tailwinds for Crude Palm Oil include; 1) The reopening of China, which would increase the demand for palm oil from the world’s 2nd largest importer of the product. 2) Biofuel Mandates, which would put higher demand pressure on Palm Oil. 3) Slowing production growth in palm oil could lead to supply-demand imbalances, pushing palm oil higher as supply falters. One way to trade this price divergence would be to short the Soybean Oil – Palm Oil spread. This trade can be set up by selling 1 Soybean Oil Futures and buying 1 USD Malaysian Crude Palm Oil Futures. However, do note that in such a set-up, the position is not fully ‘hedged’ as the contract units are different, 1 Soybean Oil Futures has a contract unit of 60,000 Pounds (~27.21 metric tons) while 1 Crude Palm Oil Futures is for 25 metric tons. Another option would be to trade the exchange listed Crude Palm Oil – European Low Sulphur Gasoil Spread (POG) which handles the construction of the spread and is financially settled, removing delivery risk. While it’s hard to ‘call’ the top, such price divergence provides interesting opportunities that we leverage if risk is managed properly. These trade set-ups allow us to express the view that Palm Oil’s underperformance will be closed, either by Palm oil catching up with its substitutes or if its substitutes fall in prices. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Sources www.cmegroup.com www.cmegroup.com jakartaglobe.id oec.world
CME:CPO1!Short
by inspirante
SOYBEAN OIL // long term scenariosI don't know anything about Soybean Oil, but I watch the price that shows everything I need to know. This is quite a long term one since it's the weekly, but it's so beautiful! Although the primary trend is still long, market participants printed a nice impulse wave on the way down. This last couple of slow waves make up a correction of the impulse wave while crawling up, and price has just tested the last weekly south breakout. From here, the break of this countertrend takes aim at this market , shorts will be ready to jump in. An early sign happens first with the break of the last weekly north breakout, but the second one is better. If price reaches it, be patient. It may slow down there, even make a small countertrend, but a break of this zone can take the price all the way to the next weekly north breakout, that's happen to be close to the target fibo 138.2 The early sign becomes valid only when this week's closing makes the breakout a breakout (higher than the previous high). The countertrend is valid at the moment, but the daily printed a nice shooting star... Thanks for reading my analysis!🤘🏽 Trade safe and let me know what you think! ⚪️⚫️ -------------------------------------------------------------------------------- ANYWAY, a lot of Qs about the direction of the price. But it doesn't matter. WE JUST REACT! Remember that trading is a business. SIZE your TRADES according to your risk aversion! ----------------------------------------------------------
CBOT:ZL1!
by TheMarketFlow
1
How do we ride through the selloff storm?Joining a global commodities rout, Soybean Oil had a rough time in the past 2 weeks, tumbling close to 22%. The move precipitated after breaking the 6-month uptrend and has struggled to find support until now. After bouncing off the $65 support level and the 61.8% Fibonacci retracement, prices seem to have found a floor, ready to make the next leg upwards. Zooming out to the daily candles, we see Relative Strength Index (RSI) deeply oversold, with only 2 other occasions since 2015 where the RSI reached such levels. One was in 2015 and the other one in 2020.The 2015 instance was followed a 50% price increase from the low of the RSI and the 2020 one was followed by a massive 196% price increase. The sharp selloff, strong support levels, and historical precedence allow us to favor the long side for Soybean Oil. Entry at 66.87, stops at 58.3. Target at 78.9. Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios.
CBOT:ZL1!Long
by inspirante
Dining out soon?China, one of the largest consumer of soybean oil, has tapered its demand for the edible oil due to COVID-related control measures over the past few months. With new cases falling and lockdown for Shanghai expected to be lifted soon, we see positive demand drivers on the horizon for soybean oil. Restaurants are among the largest consumers of the oil. As consumers resume their normal consumption patterns and dining out becomes the norm again, it’s easy to see the impact on demand. Looking at the charts, we see a falling wedge pattern since April (where prices make lower highs and lower lows) which generally indicates an upside breakout could be near. On a longer timeframe, we are close to the 6-month uptrend line, where prices have bounced off in the past. Additionally the $78 resistance level provides us with further confidence that prices are likely to remain supported at the current levels before making a jump higher. As demand from the world’s largest consumer of soybean oil revives and technical levels remain intact, we expect more upside from here! Staggered entry at 79.25 and 78.25 with stops below 77.25 and targets at 84 and 87.60. Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios.
CBOT:ZL1!Long
by inspirante
1
Descending Triangle on Soybean Oil, Target at 3755Trend Analysis The main view of this trade idea is on the 4-Hour Chart. The commodity soybean oil (SOYUSD) is in a descending triangle setup pattern. The resistance line is seen with lower highs on 7200 and 6495 respectively. The support line is observed around 5450. A breakdown in support will take SOYUSD towards 3755. A negation of this pattern will be seen if the commodity breaks above the resistance trend line, above 6490. Soybean Oil is in a sell mode as it approaches support around 5450 on the longer termed Daily chart. Technical Indicators The technical indicators are bearish for SOYUSD. There has been negative crossovers on the short (50-MA), medium (100-MA) and long (200-MA) fractal moving averages. The RSI is trading below 50 and there has been a negative crossover on the KST as the commodity’s price approaches support. Recommendation The recommendation will be to go short at market, with a stop loss at 6490 and a target of 3755. This produces a risk/reward ratio of 1.68. Disclaimer The views expressed are mine and do not represent the views of my employers and business partners. Persons acting on these recommendations are doing so at their own risk. These recommendations are not a solicitation to buy or to sell but are for purely discussion purposes. At the time of publishing I have exposure to Soybean Oil.
FOREXCOM:SOYUSDShort
by Ceddy86
1