Soy Meal/Bean Oil Spread: Entry Signal Triggered

Soy Meal/Bean Oil Spread

On November 12th the March soy meal/bean oil spread closed at +$17,044 (premium meal). This elected the blog’s hypothetical entry signal trade to buy one 100-ton soy meal March soy meal contract and simultaneously sell one 60,000 lb. March bean oil contract to establish a long spread position at approximately +$17,044 (premium meal). Initially, the exit strategy is to liquidate the spread on a close below +$15k. In addition, a close below +$15k will also trigger a sell signal to initiate a short March soy meal/bean oil spread position. This is because we are using a reversal system to maintain a continuous spread position on either the long side or the short side. Closings above +$17k trigger buy signals and closings below +$15k trigger sell signals.

March Soy Meal Bean Oil spread daily

March Soy Meal Bean Oil spread daily

The close above +$17k opens the door for the March soy meal/bean oil spread to advance toward the weekly nearest-futures chart at the summer high of +$24,726 or even the late May top at +$26,920, which marks the all-time high for the soy meal/bean oil spread.

One of these days, the two-year bull market in this spread will end. In the prior four decades, spreads of +$12k or higher have ultimately been followed by a reversal and a decline back down to ‘even money’ where the meal contract and the oil contract were of equal value. We intend to be there when it happens. But if the bulls want to run this spread up several more thousand dollars first, who are we to argue? Might as well go along for the ride and try to make a few dollars on the upside.

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