Vegetable Oil Prices Trade in Wide Ranges but Settle Higher

World vegetable oil markets continued to stabilize following two weeks of extreme volatility. However, both markets traded in a relatively wide range on Monday, with soybean oil futures trading more than one percent above and below unchanged and palm oil prices trading from 2 1/2 percent below to 1 3/4 percent above the closing price Friday. Despite the wide intraday swings, both markets have tested and bounced off meaningful technical levels, which suggests that, in the short term, the selling may have run its course. It is too soon to know whether the end of the intense selling means a new leg higher. However, there are only two days of trading left until the Chinese markets close for a week in observance of the Golden Week holiday. Without the daily influence of the Dalian exchange, traders are likely to focus on the fundamentals of the soybean oil and palm oil markets. Given the relatively bullish outlook for both commodities for the next several months, that focus could provide support for prices.

Fund spreading drove soybean oil futures about 3/4 percent higher (December contract +29 basis points per pound). The advance left the benchmark December contract back above the 33-cent level, which had provided substantial support during the rally. However, selling at the five-day exponential moving average limited the advance. The move higher left the fast and slow stochastic lines close to even, which could provide technical support if prices continue to move higher on Tuesday. Prices traded close to the high of the day shortly after the overnight open, but fell steadily through the U.S. open before starting to rally mid-morning around the 32.5-cent level. The move higher over the last two days has occurred on declining volume, which may indicate a lack of conviction and short covering following the sharp decline. If that is the case, The Jacobsen would expect some weakness over the balance of the week. However, if the last two days are the start of a new leg higher, prices should continue to mover higher, and volume should increase over the balance fo the week.

Palm oil futures were narrowly mixed with gains in deferred contracts (August 2021 contract +21 ringgit per tonne) while the December and January contracts were unchanged. Prices initially moved higher at the opening but weakened throughout the morning. The selling accelerated as trading resumed after the mid-day break when expectations that Chinese traders would liquidate positions ahead of the Golden Week holiday drove the December contract through stop-loss orders below the 2,800-ringgit level. However, an announcement by the Malaysian Defence Minister of new 14-day lockdowns starting Tuesday in Sabah, which accounts for 25 percent of Malaysian production, triggered buying, which drove the nearby contracts back to unchanged. The initial lockdowns, announced in March, reduced Malaysian output during the month by about 5,000 tonnes per day. If the lockdowns persist, it could offset traders’ concerns about the upcoming Malaysian Palm Oil Association’s estimate of palm oil production during September, which traders had expected to be bearish and drive further weakness in the futures market.