Know Your Market
Use a Seasonal Approach to Buying Feed Protein
Dec 08, 2012
Consider buying soybean meal now for winter and looking to buy summer meal in the February/March 2013 periods.
By Carl Babler, Atten Babler Commodities
Commodity prices are constantly being affected by a growing number of domestic and global market fundamentals. A dairy’s commodity procurement manager continues to face a very challenging assignment, especially when making purchasing decisions regarding feed protein needs. Because soybean meal is often the price driver of other feed protein prices, for this article we will focus on a buying strategy for soybean meal.
The meal market since 2003 (shown below) has posted all-time historical high prices: in 2008 at $455 per ton and again in 2012 at $551 per ton. Each price peak was a result of a $200-plus per-ton price increase followed by a $200-plus per-ton decline. These price moves dramatically influenced dairy ration costs and surely have got the attention of those responsible for feed protein buying decisions. With price movement of the past 10 years seemingly becoming the expected norm, it is good to know there is a practical approach that can be followed when buying meal.
The Seasonal Price Chart for Soybean Meal (see below) shows relative price levels for given periods of the 12-month calendar.
Source: Atten Babler Commodities
Soybean meal has been known for many years as a commodity market with a strong seasonal price tendency. The chart above provides a simple visual of the best time of the year to buy bean meal. A seasonal approach to buying meal would direct the purchase of meal needs for winter to be procured in October/November and the meal needs for summer be procured in February/March each year.
While the past is no guarantee of the future, the seasonal price pattern provides a very clear expectation for buying opportunities to be offered in the February/March and October/November calendar periods each year. This seasonal approach does not depend on a price level to trigger the purchase; thus, there is not a price that is expected, rather just a time of the year in which the price has historically been opportune for a buyer.
Buying soybean meal based on its seasonal price pattern is a simple approach that provides a buyer a foundational reason for action. It is advised to analyze the fundamental conditions of the market and use this analysis along with seasonality.
Part of “Knowing Your Market” is understanding your market’s seasonal price pattern. The July 2013 Meal (chart above) shows that price direction has followed the expected seasonal pattern since it began trading in January 2011. Consider buying soybean meal now for winter and looking to buy summer meal in the February/March 2013 periods.
Carl Babler is a principal with Atten Babler Commodities of Galena, Ill. Contact him at firstname.lastname@example.org or 877-259-6087.
Risk in purchasing options is the option premium paid plus commissions and fees. Selling futures and/or options leaves you vulnerable to unlimited risk. Transaction cost used throughout this report includes both commissions and fees. Atten Babler Commodities LLC uses sources that they believe to be reliable, but they cannot warrant the accuracy of any of the data included in this report. Past performance is not indicative of future results. Unless otherwise stated the information contained herein is meant for educational purposes only and is not a solicitation to buy futures or options. The author of this piece currently hedges for their own account and has financial interest in the following derivative products mentioned within: soybean meal.