Liquidation continued to weigh on world vegetable oil prices on Thursday. Chinese futures and cash prices continue to plunge, driving selling in the palm oil and soybean oil markets. It is not easy to know when the liquidation will end, but at this point, both palm oil and soybean oil prices are relatively close to the fair value suggested by the fundamentals. That said, if the Chinese market continues to move lower into the Golden Week holiday, there will be three more days of selling before the Dalian is closed for a week in observance of the holiday.

The decline is helping boost the profitability of biodiesel producers as crude oil prices have remained close to the $40 per barrel level for the last three days, with the benchmark November contract rising above $40 by the end of agricultural trading hours.

Soybean oil futures dropped by about one percent (December contract -39 basis points). However, the most actively traded December contract settled about one percent above the low of the day, which was at the 50-day moving average. If the December contract can hold that level on Friday, prices may have set a short-term low in soybean oil prices just above the 32-cent level. Buying at the lower Bollinger band, which is just above the 50-day moving average, also helped drive prices higher from the early morning low.  Weakness across the soybean complex led funds to reestablish some of the long oil share positions liquidated in recent days. The stochastics suggest the market is due for a short-term bounce, but they have been implying a bounce for the last two sessions, so the December contract may need to retest the 32-cent level before it can stabilize. If Chinese prices and soybean futures continue to move lower, it will be difficult for soybean oil prices to rally. However, if either stabilize, the fund activity on Thursday suggests they may want to add to long oil share positions following the sharp decline in oil share during the week, which would be supportive and limit declines even if prices continue to move lower.

Palm oil prices fell more than 3 1/2 percent (December contract -104 ringgit per tonne) to extend its streak of lower moves, which is now the longest since June. Prices have fallen more than 11 percent this week, which has erased all of the gains from the nearly 10 percent advance last week. The decline on Thursday left the most actively traded December contract below the critical 2,800-ringgit level. The Jacobsen believed that level would act as support as prices moved lower, but domestic political tension may have contributed to the additional weakness on Thursday. A report indicating palm oil output during the first 20 days of September rose five percent from the same period in August and concerns about a dropoff in palm oil shipments to Europe due to a resurgence in the coronavirus pandemic weighed on prices. Stochastics also suggest palm oil is due for a short term bounce, but unlike soybean oil, the benchmark December contract remains about two percent above its 50-day moving average. Unless there is a rebound in Chinese prices, it now seems likely palm oil prices will test the 50-day moving average (possibly on Friday) before any attempt to move higher.