CHICAGO - Anyone who placed big bets on soybean meal a couple of months ago might now be feeling like a lottery winner, but the gain-filled trading sessions of late may be numbered.
July soybean meal futures have risen nearly 50 percent between early April and the contract high last Thursday, although price gains have since eased for the first time since the start of the rally.
Soybean meal futures, traded on the Chicago Board of Trade, generally follow the trend of soybean futures. But the recent gains in meal have far outperformed the simultaneous bean rally, as meal futures have been acting like a runaway train. ( http://reut.rs/1WxGeLv )
Soybean meal has surely gained the attention of market-watchers in recent weeks, but who exactly uses the meal and where is it produced? And is the futures boom about to go bust?
Soybean meal is one of two by-products that result from the crushing of soybeans. When a bushel of soybeans weighing 60 pounds is crushed, it produces 11 pounds of soybean oil and 44 pounds of soybean meal containing 48 percent protein.
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Because of the high protein content, almost all of the world's soybean meal is used for animal feed. Further, soybean meal accounts for about 69 percent of protein sources used in animal feed.
MEAL FACTSHEET
Last month, the U.S. Department of Agriculture projected that both world soybean meal production and consumption would hit record highs in the 2016/17 marketing year.
But demand is expected to grow at a slightly faster rate than supply in the new crop year, which would reduce the stocks-to-use ratio to less than 5 percent for the first time in six years. ( http://reut.rs/1WxG2f2 )
China's leading pork industry puts the country at the top of the list in terms of global soybean meal consumption with a 29 percent share. Another third of world soybean demand comes from combining the European Union, the United States and Brazil, as all three countries are heavy livestock producers and thus have a strong appetite for protein-rich animal feed. ( http://reut.rs/1RP9qWc )
China is also the top soybean crusher, with another 29 percent world share. The world's three major soybean producers, Brazil, the United States and Argentina, crush a good portion of the oilseed they grow, together accounting for around 50 percent of world crush.
These three major soybean producers also distribute most of the world's soybean meal supply. Between 2014 and 2017, Argentina will account for nearly 47 percent of annual soybean shipments. Brazil and the United States will add 23 percent and 17 percent, respectively. ( http://reut.rs/1WxGIBf )
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China essentially imports zero meal, as it is cheaper to acquire raw soybeans and crush them domestically. The European Union is the top destination for exported soybean meal and southeast Asian countries combine for a close second.
REVERSAL IN SIGHT?
Chicago soybean meal will be worth watching in coming days and weeks because the futures rally could soon lose steam.
The support for the soybean complex is still generally there. Among the reasons are continued talk of problems in Argentina and a newly-issued hot and dry mid-June U.S. weather forecast from the Climate Prediction Center.
One indicator that should have meal bulls wary is the relative strength index, or RSI, which measures how overbought or oversold a certain commodity may be. When the RSI exceeds 70, the commodity is thought to be overbought or overvalued, and vice versa when the RSI dips below 30.
Weekly RSI closed at 83 last week, the highest such value for front-month soybean meal in recent memory. Weekly values have exceeded 70 since the end of April. ( http://reut.rs/1RP8G3p )
Although these values suggest a pullback in futures prices should have been expected almost a month ago, that is simply not what has happened. This has led to a degree of confusion and even anxiety in the market, but it has also allowed for a steady build-up of long positions by funds.
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But rallies need fuel in order to stay alive, and there is plenty of uncertainty about whether soybean news in general will prove bearish or bullish in coming weeks.
Argentina's soybean harvest will soon wrap, and the market's focus should eventually turn away from South America and toward the United States, where a potentially volatile summer weather pattern could keep pumping the juice into the soybean complex for at least a little while longer.
