Palm Oil Futures Continue to Rally

World vegetable oil prices were mixed on Wednesday, with palm oil futures continuing to rally while selling during the U.S. session drove soybean oil prices lower. Spreading between palm oil in the Malaysian and Chinese markets is helping support palm oil. Palm oil also remains supported by expectations the Malaysian Palm Oil Board (MPOB) will report lower growth in production in May in its report, scheduled for release next week.

Profit-taking triggered by the liquidation of long oil share positions by the funds pressured soybean oil futures during the U.S. session and left most contracts down about 1/4 percent (July contract -8 basis points per pound). Selling at the upper Bollinger band and above the psychologically important 28-cent level also contributed to the weakness. Despite the decline, soybean oil futures remained at the top end of the recent trading range and remained firmly in an uptrend. Whether that trend will continue depends, in part, on the direction of crude oil, but rising world vegetable oil prices should provide some support.

Nearby palm oil futures rose about 2 1/2 percent (August contract +58 ringgit per tonne) for the second day in a row. However, selling at the 2,400 ringgit level and the upper Bollinger band limited the advance. The move left the most actively traded August contract at the highest closing price since March 6 and just below the gap left by the opening on March 9. The Jacobsen believes prices could fill that gap (2,439 – 2,405 ringgit) before the MPOB report but could move lower following the release. The move lower will depend on the data in the report. However, unless traders expect production to remain below the level implied by the seasonal trend, The Jacobsen projects stocks will build over the balance of the marketing year, which will weigh on prices.