Commodity Trading:
Soybean Oil Futures
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Supply
/ Production Considerations
To
understand the production cycle of the Soybean products, one must
understand the production of Soybeans.
Since Soybeans are harvested by mid November, production of
products tends to increase to meet demand and consumers usually begin to
build stocks.
However, Soybean producers tend to withhold supply right after
harvest for tax purposes.
Along with the slowing of transportation, due to the freezing of
interior waterways, supplies tend to begin to get a little tight in the
first part of the year.
But, as farmers market their crops to raise cash flow for the
planting effort, and the interior waterways free up, the price of both
Soybean Meal and Oil fall along with Soybeans in the latter part of
January and early February.
Soybean
Meal and Soybean Oil prices tend to be higher until mid May when the mid
western crop is planted.
This is due to concerns over the status of the South American
Soybean crop, which is typically pollinating (or being “made”) in
February and March, coupled with a lack of immediate available supply, and
Soybean planting concerns.
Planting
progress (and the fact that the South American crop is now impervious to
damage and close to harvest) tends to weigh on Soybean and Soybean product
prices. The
main growing regions of South America are Brazil and Argentina.
Argentina is a major cattle producing nation as well, meaning it
will use all of its Soybean Meal and is, in fact, a major importer of
Soybean Meal.
Brazil, on the other hand, tends to export all of its Soybean Meal,
as well as the bulk of its Soybean Oil.
Therefore, as pollination of the United States Soybean crop
approaches, the Soybean and Soybean Meal markets tend to rally, but
Soybean Oil tends to halt its decline.
As
summer wears on, Soybean Meal and Soybean Oil tend to fall along with the
Soybeans.
In the beginning of August, however, Soybean Meal tends to bottom.
Soybean Meal is primarily a livestock feed.
So, as the South American Soybean crop is being processed and the
products exported, more Soybean Oil is being exported than Soybean Meal -
especially with summer on this side of the equator being winter on the
other side.
In most years, the best the Soybean Oil market can do is to hold
steady while Soybeans and Soybean Meal rally somewhat.
Soybean
Meal tends to outperform both Soybeans and Soybean Oil from early August
through to mid September, as the United States Soybean crop is being
prepared for harvest.
Because of
Soybean Meal's fat, amino acid, and protein contents, this product
is an ideal winter feed.
So, not only is demand running brisk for winter feed in South
America, US Cattlemen tend to stock up in early September for their winter
feed needs.
Soybean Oil, however, is being flooded with South American supply,
as well as supply from competing products, such as rapeseed oil and palm
oil, which have also been recently harvested.
As
harvest approaches, supplies of US Soybeans and especially products is
pretty thin; therefore, for roughly a month after the harvest is
completed, Soybean products remain in tight supply situations.
This tends to be exaggerated by the fact that farmers, as well as
processors, tend to withhold supply near year-end to postpone tax burden
into the new year.
Soybean Oil tends to lead this early winter rally, with Soybean Oil
being the strongest member of the Soybean Complex from October through
December.
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