Vegetable Oil Prices Rally but Settle Well Below Highs

Vegetable oil prices rallied on Tuesday, but a volatile session left soybean oil futures narrowly mixed. Palm oil futures rose on strength in soybean oil and Dalian prices on Monday while the Malaysian market was closed. However, bearish cargo surveyor data limited the gains in palm oil. Rising crude oil futures also supported the move higher in vegetable oil markets.

Nearby soybean oil contracts rose less than 0.1% (December contract +3 basis points per pound) but settled about 1 3/4 percent below the high of the day. It was the second straight day soybean oil futures closed well below the high. On both days, profit-taking in soybean futures triggered selling across the soybean complex that drove volatility in soybean oil and left the market to settle well below the highs of the day. Buying at the five-day exponential moving average helped support prices while selling at the upper Bollinger band limited the gains. It was also the second consecutive day the benchmark December contract was unable to hold the psychologically critical 33-cent level. Volume over the last four days has been well above the 10-day moving average, which, combined with the recent moves, suggests the market has a lot of conviction that value is below the 33-cent level, and the failure to hold that level could trigger selling in the short term.

Palm oil prices rose about 1 3/4 percent (November contract +46 ringgit per tonne) following the long holiday weekend. However, like the soybean oil market, palm oil futures settled well below (1 1/2 percent) the high for the day. Selling above the psychologically critical 2,800 ringgit level weighed on prices, but optimism about potential Indian demand ahead of the Diwali festival supported the gains. The strength in palm oil prices on the Dalian exchange also provided support. A report from the Indonesian Palm Oil Association (GAPKI), which suggested 2020 palm oil output in the world’s largest producer, would decline more than one million tonnes from 2019, also contributed to the bullish tone. Recent rainfall totals in Indonesia have not been ideal. It is too soon for the weather to provide short-term support, but if the drier-than-normal conditions persist, it could impact palm oil production in early 2021.