This post is a follow up from our previous Soybean Oil posts, the most recent being December 10th’s, Tuesday Technicals – Soybean Oil
The soybean oil market continues to rally as previously expected. However, the next couple of weeks may provide a buying opportunity to join the trend while it is still well intact.
Looking at the daily chart, we have wave 3 complete and should see a retracement in wave 4 that provides an opportunity. The target for wave 4 is 33.65; this is where wave 4 is a .382 retracement of wave 3 (most common) and within the previous 4th wave of one lesser degree. That being said, sub-34 cents should be deemed as a buying opportunity to layer in coverage.
Confidence in this wave count comes from the following guidelines:
- Wave 3 = 1.618*Wave 1, most common Fibonacci ratio for wave 3’s
- Subwave v = Subwave i, what is expected when wave 3 is extended
- Momentum is at its peak on the last price high. This is indicative of wave 3 price action.
The hourly chart shows that the substructure is concurrent with the overall outlook.
Looking at the RSI-Stochastic indicators, we can see the uptrend is healthy. Look for RSI to hold above 40 on the current retracement as it did in late November to early December. If RSI settles below 40, there will be questions on the health of the uptrend.
Referencing the weekly chart from previous posts we can see our long-term price outlook for soybean oil is north of 38¢ in 2020.
Soybean Oil Fundamentals
- SBO has been led by a runaway palm oil market in response to global vegetable oil stocks/use ratios the lowest since 1976/77. Palm oil rose 43.6% in 2019, its best year since 2009 following sharp declines the prior two years. Most of the advance came in the 4th quarter after top producers of Indonesia and Malaysia announced plans to use more palm oil in biofuels, with Indonesia using 30% palm oil in diesel and increasing that to 40% in 2021. Malaysia is set to boost biofuel usage to 1.3 million liters/year.
- India, the leading importer of edible oils, lowered it duty of palm oil to 37.5% from 40% on crude palm and from to 45% from 50% on refined palm oil. India’s cut in its import tax on palm oil imports will lead to higher imports of palm oil by the world’s biggest edible oil buyer in coming months. China’s demand for oils is also up as their soy crush has been cut back due to African swine fever.
- Indonesia’s $50/mt export levy starting in January for palm oil gives U.S. soybean oil further pricing advantages.
- The world veg oil market has also been fueled by reduced production in both Malaysia and Indonesia. According to data from the Malaysian Southern Peninsular Palm Oil Millers Association, production in the region fell 20.6% on month in December.
- Thursday’s USDA crush was reported to be a lower than expected 174.9 mb in November, compared to 178.1mb last year. SBOcrude oilstocks were up 3.5% m/m but down nearly 4% from a year ago. A lower y/y soybean oil yield so far this year—November at 11.45 pounds, down from 11.49 in October—should continue to support bean oil moving forward.
- Strengthening global vegetable oil values on tightening supplies may be a general backdrop during much of 2020.