Vegetable Oil Prices Decline Ahead of Data

World vegetable oil prices declined ahead of fundamental data from the Malaysian Palm Oil Board (MPOB) and the United States Department of Agriculture (USDA) scheduled for release on Thursday. In addition to the position squaring ahead of the report, weakness in crude oil also weighed on prices.

Soybean oil futures fell about 3/4 percent (July contract -23 basis points per pound) despite a rally in crude oil prices during U.S. trading hours that left prices higher for the day. The decline left the most actively traded July contract to settle right on the psychologically important 28-cent level. Buying below that level limited the fall. Prices have mostly traded sideways this week as traders look forward to the USDA data. The Jacobsen does not believe USDA will make any substantial changes to its soybean oil balance sheets but thinks they may raise 2019/20 U.S. soybean oil used in biodiesel production slightly. Soybean oil remains near the upper end of The Jacobsen’s trading range, and it thinks prices may remain range-bound in the short term unless there is a surprise in the USDA data.

Palm oil futures declined by about 1 1/2 percent (August contract -39 ringgit per tonne). Selling at the 200-day moving average contributed to the weakness, but buying at the five-day exponential moving average limited the decline. Palm oil futures have also traded sideways since the middle of last week as the 2,400-ringgit level has provided substantial resistance. The Jacobsen believes the MPOB report could be the turning point for palm oil prices and futures may retrace a significant portion of the recent rally. However, cargo surveyor data released on Wednesday indicated that Malaysian palm oil exports during the first 10 days of June rose sharply (~ 60 percent)  from the same period in May. If export demand remains strong in June, it may offset the seasonal increase in production and lower expectations for market-year-ending inventories and support prices. In the short term, the MPOB data is likely to drive the market. If production is below market expectations of basically unchanged from April, futures could test the 2,500 ringgit level.