With corn plantings expanding to their largest level since World War II and wheat prices exploding $2 per bushel. higher than their previous record level in September, the current tightening of the world and U.S. soybeans supplies will likely keep the soy complex quite nervous during South America’s upcoming growing season and into next spring’s U.S. planting. There is a question whether the world will have enough supplies to fuel its human and animal desires for this important dietary compensate. How can you profit?
Given the recent high volatility in soybeans and the world’s previous desires for alternative fuels, which have already pushed soybean oil to near its second highest price levels of all-time, soybean meal may offer the best risk/reward scenario for an investor this year, particularly if supply concerns arise during the upcoming South American growing season. Under these circumstances, utilizing a pullback in meal prices during the upcoming harvest seems the most prudent approach to participate in a possible protein shortage that might occur in 2008.
After the recent $75 per ton advance in nearby spot soybean meal prices, being patient and utilizing technical measures to make your entry point into the market seems appropriate. Based on recent price activity a pullback to the $240 per ton to $250 support area in the December contract is a solid target for this market. It also corresponds with Fibonacci retracement principles matching a 50% to 61.8% from the highs. Adding to this support zone is the reverse head-and-shoulders neckline support at $234 on this same weekly soybean meal chart.
Where could meal prices go?
The first objective for this meal purchase would be the recent nearby price highs of $286, but this market’s previous price congestion in the $310 to $330 range seems like this market’s next objective.
Meal’s optimism won’t be broken until its nearby price breaks its basic uptrend, which is currently located around $210. However, using a stop below the reverse head-and-shoulders neckline at $234 seems like a more prudent approach for most traders. Given the three years of building support in this market’s charts, soybean meal appears like a good technical buy for investors now and into 2008.
Jerry Gidel is a broker and analyst for North America Risk Management Services Inc. (Narms) who specializes in cash and futures grain markets. He also provides research trading ideas for RJOFutures in Chicago.
Gary Rhea is an accomplished agricultural risk management technical analyst who served as the featured grain and livestock analyst for a major financial newswire as president of rsk management Partners in Des Moines, Iowa.
