We reported in the May 24th edition that July soya bean futures had made a top extension. Since then the ‘back months’ have risen quite sharply, narrowing the wide premium that July beans command over November and further deliveries. These months too have now extended, while the July ‘marks time’ by trading sideways. Top extensions make us want to sell short of course and we think that there is a fairly safe short-side trade to adopt here, but in soy bean oil.
The latest demand for soya comes mainly from that for soya meal, which is fed to cattle in newly meat-hungry China. Whenever soya beans are crushed to make meal, soya oil is also produced. The demand for this remains good but it has not burgeoned like that for soya meal. Accordingly, whenever we have a reason to sell anything ‘soy’ we like to add a short-sale of soya bean oil as the upside is limited. If trading commodities is too scaring because of the volatility, this may be a trade for you. We still like the short side of soy beans, but only now would we start to sell the distant months and we still prefer to sell July, as it hasn’t risen since the top extension. Now we would add a short in October soya oil too. Here are the pictures: