What goes up must come down, they say.
And that is certainly true of soymeal prices.
After jumping 11% in the three weeks to December 6 - on concerns over a lack of rainfall for soybeans in Argentina, the top exporter of the feed ingredient - Chicago soymeal futures for January have lost nearly all that ground, as dryness in the South American country has eased.
The contract has fallen for nine out of the past 10 sessions, in a 9.5% slide which in the last session took it back below its 100-day and 200-day moving averages for the first time since mid-November, in the early days of the spike.
‘Argentina will trend wetter’
In early deals on Thursday, investors seemed to be pondering whether they had eliminated enough risk premium for now, with the contract standing up all of $0.10 at $315.30 a short ton.
CHS Hedging had it that “central and northwest Argentina will trend wetter for the next week,” adding that southern Brazil, another notable soybean growing region, “is looking at wetter weather for the next two weeks as well”.
But, as ever, forecasts differed.
Benson Quinn Commodities said that the “EU and GFS weather models are not currently in agreement on precipitation and extended forecast for Argentina.
“Until such time they present a clearer prospect, markets will be reluctant to pile on one way or the other.”
Soymeal vs DDGs
Still, Argentine weather is actually not the only factor that the soymeal market has to worry about, with demand for the high protein feed also in the spotlight.
In particular, there is some idea that distillers’ grains (DDGs), the high protein residue left over from grain ethanol manufacture, will take some more of soymeal’s lunch.
“DDGs seem to be displacing a certain amount of domestic meal at current spreads as demand is price sensitive,” Benson Quinn Commodities said, flagging “good” demand for DDGs.
“Look for soymeal [prices] to remain under pressure, taking soybeans with them, until we see a more threatening forecast from South America.
Prices at 17-month high
That said, DDGs’ price advantage is slipping.
The price of the ethanol plant byproduct, which was badly hurt by curbs by China on imports, is recovering fast, rising by 35% over the past seven months to hit $200 a tonne (as measured on the US export market) for the first time since July last year, according to US Grains Council data.
Another $42 a tonne, and DDGs will have matched their recent high, reached in mid-June last year,
The recent high, of $242 a tonne, was reached at a time when soymeal futures were trading north of $400 a short ton.
Indeed, to judge by that kind of price ratio, soymeal can’t be too far from winning back demand.