Commodities are in the early innings of a secular bull run.
The list of raw materials hitting all-time highs since 2020 includes Gold, Copper, Wheat, Soybean Oil, Cattle, Orange Juice, Cocoa, Heating Oil, Gasoline, Palm Oil, Lumber, Tin, Rebar, Iron Ore, and Coal. (If that roll call doesn’t scream commodity supercycle, I don’t know what does.)
It’s an exhaustive list that will only grow in the coming years. Remember, these cycles can last decades. We’re only in year four!
Of course, there are also some laggards amongst the ranks. (ahem, Crude). But don’t lose sight of the bigger picture!
Even Soybeans are queuing up for new all-time highs…
Check out soybean futures zoomed out to the 1950s:
Prices blasted higher in the mid-70s, tracing the upper bounds of a new trading range that defined prices for the next thirty years.
A similar pattern emerged during the last commodity supercycle in the early to mid-2000s. Soybean futures bottomed in 2002, ripped to the former all-time highs and then pulled back before skyrocketing into a new trading range.
Beans are reaching an inflection point today, much like the 70s and early 2000s. Price bounced off a critical support level, retesting the upper bounds of its current range, and is now retracing lower.
It’s tough to say if beans have hit a generational low. But if this is a true supercycle, soybeans and other commodities will form new trading ranges defined by higher prices.
Regardless, the smart money is buying the dip:
As I highlighted in last week’s Palladium post, “Commercials are the ‘smart money’ with the deepest pockets.”
These hedgers represent the “strong hands.” And like Palladium, commercial hedgers are coming off historic net-long positioning for the bean complex.
The smart money’s unwinding of record positioning will fuel an epic rally. But the strong hands need a reason to sell.
That reason comes in one form: Price.
Here are the critical levels to trade against for soybeans, soybean meal, and soybean oil heading into spring…
Soybeans
Earlier this year, soybeans undercut the late 2021 lows while registering their lowest 14-week RSI reading since 2014 (another extreme along with COT data):
Those former lows mark or risk level at approximately 1204’0 (the November 5th weekly close), providing a clean level against which to trade.
I like buying beans above that level with an initial target of 1402’0 and a secondary objective of roughly 1525’0 (the 2023 highs).
Of course, soybean futures could rip to new all-time highs. But I must witness a daily close above last year’s highs before adjusting targets.
Soybean Meal
I doubt I’ll trade soybean meal this year.
Meal lagged the bean complex during the 2020-2022 bull run. Beans and bean oil rose roughly 115% and 255%, respectively, while bean meal peaked a year later with a mere 80% gain.
Nevertheless, we can define our risk:
Buying soybean meal above last year’s pivot lows of approximately 371 makes sense. But only if I miss the buy signals in soybeans or soybean oil.
Bean and bean oil will likely trigger first, and I don’t plan on holding positions in all three.
Plus, the meal contract represents the catch-up trade. And I prefer to buy the strongest assets when possible.
Speaking of the strongest…
Soybean Oil
Soybean oil led the previous bull market in beans, posting a new all-time high in the spring of 2022.
Today, it’s bouncing off of last year’s lows:
Soybean oil offers the best setup: a logical level of support at the spring 2023 lows, well-defined risk coinciding with a polarity zone, and a bearish-to-bullish momentum reversal.
I like buying soybean oil on a break above 49.57, targeting 64.50.
Soybeans could take off on a rip-roaring rally in the coming months.
Commodities are in a secular bull market. Grain contracts tend to pop during the spring months. And if soybean prices rise, profit-taking by strong hands will feed a healthy bid.
What do you think?
Are you ready to buy soybeans and bean oil on a break above our risk levels?
-Ian
COT Heatmap Highlights
Commercial hedgers cut their soybean position for the second week running, dropping more than 11,000 contracts following a 20,000 contract reduction last week.
A potential unwind is also underway in soybean oil as Commercials trimmed their long exposure by more than 14,000 contracts.
Commercials hit a new record-long position for the Australian dollar.
