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Todd's Take
Wednesday, April 26, 2017 7:52AM CDT
By Todd Hultman
DTN Analyst

Last week was mostly bearish for grain prices, but I hope you caught DTN's article by Staff Reporter Todd Neeley, "Biodiesel Probe Moves" (http://tinyurl.com/…). In it, Neeley explained how the U.S. Commerce Department is looking into allegations that Argentina and Indonesia were dumping subsidized biodiesel in the U.S. to the detriment of U.S. biodiesel producers.

If the allegations have merit, Argentina would be the larger culprit, shipping 425 million gallons into the U.S. in 2016, or 63% of all biodiesel imported into the U.S. According to the National Biodiesel Board, the U.S. Commerce Department is expected to have preliminary determinations in August or October.*

While it is difficult to guess if or when some form of counter-vailing duty may be coming to protect U.S. soybean oil prices from the competition of Argentina's biodiesel, it certainly sounds like the kind of "America first" policy the new White House would favor.

You may recall a brief soybean oil rally in late February when rumors circulated that the Trump Administration was looking at the possibility of a new biodiesel tax credit which would apply only to U.S. sources. The rumor hasn't been confirmed, but last week's news kept alive the notion that some form of protection may be in the works.

As a market analyst, I would gladly ignore all this talk as speculative hearsay, if it weren't for numerous market clues in soybean oil showing early signs of bullish change. A look at July soybean oil's weekly chart shows that after four months trending lower, April's prices got within a half-cent of their one-year lows and commercial firms switched from being net short to net long.

Noncommercial speculators were net long 144,976 contracts in early December at 38 cents a pound, but have lost interest now that prices are around 32 cents. Soybean oil's weekly stochastic indicator has been in oversold territory since February, but is now close to turning higher, helped by last week's higher close.

So far, July soybean oil's trend remains down and, after this week, the five-week high will drop to 32.92. With price momentum showing bullish divergence in April, a change in trend is possible, especially if we continue to hear news of possible protection for U.S. biodiesel producers.

Of course, I cannot guarantee soybean oil prices will trade higher -- there are plenty of risks and the anticipation of increased soybean supplies in 2017 tops the list of bearish concerns. However, given the convergence of bullish clues, don't be surprised if we see July soybean oil prices turn higher soon.

* "U.S. biodiesel industry testifies to ITC on illegal trading at hearing" a National Biodiesel Board press release, Apr. 13, 2017 at http://tinyurl.com/…

Todd Hultman can be reached at todd.hultman@dtn.com

Follow him on Twitter @ToddHultman1


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