Is Something 'Fishy' Going on in the Soybean Market?

Older traders may remember that in 1972 there was a very poor anchovy harvest that pushed up soybean meal prices and pushed "beans in the teens." 

What caused the 1972 anchovy collapse? Although the failure of the anchovy harvest in 1972 was originally blamed on El Niño, it was later discovered that overfishing also played a part. Because of the drop in anchovy harvests, soybeans were needed as a livestock feed replacement. 

Soybean meal is a by-product of the production of soybean oil. It is a high-protein feed used mainly in diets for poultry, hogs, and cattle. 

Weather forecasters are suggesting we will see another El Nino this year.

Could we somehow make money on this expectation? Let's check a chart or two.

In this daily bar chart of soybean meal futures (continuous futures) below, It looks like prices have made a low in late May. Prices are still below the popular moving average lines. The daily On-Balance-Volume (OBV) line looks like it may have made a low in late May too. The Moving Average Convergence Divergence (MACD) oscillator has crossed to a cover shorts buy signal.

In this weekly Japanese candlestick chart of soybean meal futures, below, I can see a lower shadow in late May telling me that traders rejected the lows. The weekly OBV line is still pointed lower and the MACD oscillator is below the zero line and has not yet started to narrow.

In this weekly Japanese candlestick chart of the Teucrium Soybean ETF (SOYB), below, I can see a recent bottom reversal pattern. The 12-week price momentum study in the lower panel is showing improvement.

Bottom line strategy: Will there be an anchovy shortage? Who knows for sure, but if you are inclined to speculate a bit then consider going long the SOYB in the $25-$24 area.

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