Fundamentally Speaking

Current Soymeal-Corn Ratio at Historic Highs

In action very reminiscent of what was seen in July, December soybean meal futures have been on a roll, rallying over $50.00 per ton in the space of a week.

As consequence, new contract highs have been scored with the September highs taken out this past week.

Some say a short squeeze is going on as first notice day draws near though there are plenty of fundamental inputs to support this rally.

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Domestic soybean meal usage remains quite good as the heavy high protein meal animal sectors (pork and poultry) are seeing higher production amid very good margins.

Record high crush margins for this time of year is increased demand for beans and pushing the meal basis higher, particularly in Eastern locations.

Meanwhile export business is also booming as a mere six weeks into the 2013-14 marketing year, our total soybean meal overseas sales are 58% of final year projections.

Even with record soybean production, both Brazil and Argentina have had troubles executing on both soybean and soybean meal export commitments kicking demand back to the U.S.

All of this has not only boosted the flat price of soybean meal futures but also its price vis-à-vis corn.

This graphic shows the long-term soybean meal-corn ratio on a per ton basis along with the average and the plus and minus one and two standard deviation lines.

For only the sixth time since 1959, this ratio is above the two standard deviation lines meaning the price ratio is in the upper 2.5% of the traded range seen over the past 54 years.

This suggest s that at some point in time buying corn and selling soybean meal may be a good play as this situation will eventually reverse.

Note that after the July 2013 contract went off the board, soybean meal futures collapsed with the August 2013 contract falling by over $100 in two weeks.

(KA)

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