So you all may know that soy oil prices are relatively high right now. A few weeks back they hit $35/CWT on the Chicago Board of Trade. Were in middle of the bean harvest which is always uncertain. Just wanted to shoot over a couple sentences on bullish factors vs. bearish factors.
Bullish – Export sales are very positive pushing more beans into China. As Bean sales to China increase, bean pricing increases. As bean pricing increases crush margins shrink (the profit linked to smashing a bean into oil and meal). As crush margins shrink, if meal sales do not increase cooperatively, then oil share (the dollar % value of the oil part of the bean), increases. If crush margins shrink and oil share rises then fryer shortening, pan spray, salad oil, mayonnaise, you name it, all goes up in price.
Bullish – Right now the Brazilian crop is sprouting. They need rain badly but arent getting sufficient rainfall. Brazil is China’s #1 grain partner. If Brazil has a poor crop prices will go up an availability will go down pushing more sales to the US.
Bearish -- Palm oil prices and sales arent super strong. India is the largest purchaser of palm oil and they seem to be flush with inventory. China is #2 and they retreated in their position a couple weeks ago. Palm is a huge global competitor or soy for both edible oil and biofuels. Lack of competition encourages relaxed pricing.
Bearish – Weak crude pricing. Biofuels refineries are short on materials to make biofuel (Soy being the #1 raw material right now) but with crude oil kind of weak and so so rate on the US Dollar, there's not a lot of incentive to make biofuels.
Unknown – Commitment of Traders, Managed money has a huge stake in soy oil right now. These folks don’t buy futures for the oil, they buy for the position, to make a quick buck on a up or down market. If they exit their position is a mass selloff pricing will plummet.
It’s a wait and see market right now. We really want more of the harvest to be complete before making assumptions on pricing and such. Right now signals are mixed. Friday was a down day, markets opened down today but could be up again tomorrow. What we’d like to see is rising prices throughout the week with selloffs to new lows on Fridays. We almost achieved that last week.