Soybean oil is rarely seen as a harbinger for the entire grain complex but on some occasions it has been known to lead. What happens in soybean oil can have major implications for much of the grain and oilseed complex. At least, it has once a decade. And if history holds true, the outlook for soybean oil may again be a key through early 2006.
Daily and weekly price patterns in soybean oil are often similar to those seen in soybeans. Research has shown that day-to-day activity in bean oil does not consistently correlate well with other members of the complex. Yet, at least one big-picture pattern seems to consistently weigh on other grain and oilseed markets.
Going back to the 1960s, soybean oil has had an uncanny tendency to post major highs in years ending in “4”. In fact, tops formed in 1974, 1984 and 1994 marked the highs for the balance of the decade.
More important, following those highs, when soybean oil sunk to its next bear market low, the bulk of the grain and oilseed complex followed. With bean oil having posted an extreme high in 2004, this pattern does not bode well for the complex.
However, price history in soybean oil does hold one long term glimmer of hope for the grain and oilseed bulls. Though the last bear market in bean oil did not end until 2001, after posting extreme highs in 1974 and 1984, the subsequent bear market lows were posted in 1976 and 1986.
With March soybean oil sporting a potential head-and-shoulders top, a break of neckline support could spark another dramatic decline, quite possibly to historic support in the 14¢ to 15¢ per lb. area. And the sooner the neckline is broken, the more likely it will be that another major low will be posted in a year ending in “6.”
Glen Ring has been in the marketplace for 33 years and is editor of the View On Futures newsletter. www.glenring.com.