Soybean Oil Futures Jumps One Cent Following USDA Report

World vegetable oil prices surged higher on Wednesday on bullish fundamental palm oil data and funds spreading in the soybean oil market. A sharp rally in crude oil prices, which rose by more than $1 per barrel from the low set just before the end of agricultural trading on Tuesday. Larger-than-expected draws in U.S. crude and distillate inventories more than offset news that the Organization of Petroleum Exporting Countries (OPEC) reduced its projection of crude oil demand for 2020 to trigger the rally in crude oil futures.

Soybean oil futures jumped more than three percent (September contract +94 basis points per pound) as buying across the soybean complex was augmented by funds adding to long oil share positions. USDA’s U.S. soybean oil balance sheet changes, which included a 200-million-pound addition to soybean oil usage in biodiesel production in 2019/20, contributed to the bullish tone. However, prices were already higher following a sharp rally in palm oil futures overnight. Selling at the upper Bollinger band limited the advance, while early buying below the 200-day moving average in the benchmark December contract limited an early, overnight decline. The sharp move higher reversed the technical outlook and erased the recent drop to leave the December contract at a fresh, post-pandemic high.

Palm oil prices rallied about 1 3/4 percent (October contract +45 ringgit per tonne) following a report indicating Indonesian palm oil output through June was below last year. While the data was not surprising, the move higher occurred despite a decline in vegetable oil prices on the Dalian exchange, which may indicate that the short-term move lower was a correction in a longer-term move higher rather than the beginning of a new trend lower. However, unlike soybean oil futures, the gains in palm oil values did not erase the recent decline and still left the October contract more than 4 1/4 percent below the high set on August 4.

The key to the next short-term move in vegetable oil futures is likely the Chinese market. Chinese buying was the catalyst for the recent rally, and if vegetable oil prices in China fall, The Jacobsen believes palm oil and soybean oil futures will follow. However, there is a caveat to the outlook for soybean oil with renewed interest in soybean oil futures following recent announcements by major refiners about entering the renewable fuel production business. Even if those announcements do not necessarily impact the demand for soybean oil in the short term, the statements generate speculative interest that can trigger buying.