Tuesday Technicals – Soybean Meal – 2-20-2019

The overall trend is down in Soybean Meal, which should make ingredient buyers passive in their procurement.  However, as this wave 5 plays out, it may be prudent to become more aggressive.

Chart 1 (below) is a daily chart of the SMK9.  Our outlook is for lower prices.  We are in wave 5 of C.  We expect prices to move lower in the near future.  RSI has not yet neared oversold territory, implying there is still room to run.  There is a nice Fibonacci cluster at $297 that would be a good target; also, $291.7 is where wave 5 = wave 1 (an Elliott Wave guideline).  As we make new lows, if momentum does not increase, we can become more confident a bottom is near.  Put all this together, and realize that the $300/Ton level is relatively cheap in the past 5-7 years (chart 2), and you should become more aggressive in you procurement of soybean meal.  The $300/Ton level is actually the 18th percentile of the last 5 years.  Thus, any soybean meal you can lock up below that price is probably in the lower 1/6 of prices in the past 5 years.  That is a buy.  The 3 rules of food commodity procurement are the following:

1)      Purchase your ingredients within your budget

2)      Purchase your ingredients cheaper than last year (not always possible)

3)      Purchase your ingredients in the lower 1/3  – ½  of the yearly price range.

If you can meet these three standards, you should be confident in extending your coverage or procuring more product and sleep very well.  In this specific case, soybean meal is well below the 1/3 of the price range.

Soybean Meal is trending lower in the near term, and RSI suggests there’s room for prices to fall further.

 

Bottom Line:  We see prices trending lower in the near future.  This will most likely be accompanied by stories of ASF in China depleting Soybean Meal demand and food price deflation.  That will make it very difficult for a buyer to want to extend coverage or make any forward purchases.  However, given the our wave count suggesting that this new low will be an intermediate-term, bottom and the fact that prices are in the very low part of the 5-7 year range, this will be the time when the buyer needs to become aggressive.   Probability will be in his/her favor and when the trend does change higher, it may be too late.

“You can afford to get the market wrong, but you cannot afford to get risk-management wrong”.

Soybean meal prices are pushing toward $300/ton – putting prices at the 18th percentile over the last five years.

 

For additional analysis on Soybean meal and the grains complex, check out our Daily Grain & Market Weather Update and our Technical Commodity Update.