Soybean oil was the only grain market that was higher today, July 8. When one grain market goes up while the others go down, that catches my attention. 

Soybean oil is an agricultural market with strong base demand.

 In its July 3 MarketIntel newsletter, the American Farm Bureau Federation says a June 13 proposal by the Environmental Protection Agency (EPA) could “help preserve demand for American feedstocks and expand market opportunities for U.S. Farmers.” The  Notice of Proposed Rulemaking (NPRM) would increase Renewable Fuel Standard (RFS) volumes. Renewable fuels are produced from feedstocks — raw materials such as corn, soybeans, used cooking oil, and animal fats.

The newsletter goes on to report that the NPRM includes higher volume targets for advanced fuels like cellulosic biofuel, which is made from crop residue, and biomass-based diesel, which is derived from soybean oil or animal fats. The proposal would also limit the use of imported materials, which is intended to make U.S.-grown crops more competitive.

Soybean oil is slightly higher today and yesterday after a robust reversal rally in crude oil yesterday. Often, in my opinion, a rise in crude oil helps soybean oil rise. Crude oil and soybean oil are both energy products.

In my opinion, contract highs for soybean oil lie ahead. A trade strategy would be to buy August soybean oil at 5411, which is today's settlement price. Risk the trade to 5311 stop. That is a $600 loss per contract and under yesterday's low of 5339. Look for a new contract high in August soybean oil and have a profit objective of 5611, which is above the high of 5598 reached on June 20. That is risking $600 to make $1200, a healthy ratio of one to two.

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Stephen Davis
Senior Market Strategist 
Walsh Trading

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