Rally in Soybean Futures Lifts Soybean Oil Prices

Rally in Soybean Futures Lifts Soybean Oil Prices

World vegetable oil prices were mixed on Wednesday as bearish biodiesel consumption data weighed on palm oil prices while gains in soybean futures buoyed soybean oil futures. A sharp rally in crude oil prices during U.S. trading hours also helped support soybean oil gains. The West Texas Intermediate (WTI) benchmark November contract jumped from just below the psychologically critical $40 per barrel level shortly before U.S. trading started to a high above $41 shortly after the opening and managed to hold those gains throughout the rest of the session. Reports suggesting the Organization of Petroleum Exporting Countries (OPEC) and allied countries were adhering to an agreement to limit supplies supported the gains in crude oil.

Soybean oil futures gained about 1/2 percent (December contract +26 basis points per pound). A bullish move in soybean futures, which included a rally in spreads, contributed to the strength. Traders are concerned that the rapid pace of exports and projection of relatively tight U.S. ending stocks may limit soybeans’ availability for crushing, which drove buying in both products. Light fund spreading limited the gains in soybean oil, as did selling at the 34-cent level. The rally left the benchmark contract just 13 basis points below the recent closing high set on October 9. The move higher continued to build momentum following the sharp decline after the United States Department of Agriculture’s (USDA’s) monthly supply and demand report. Based on price action over the last week, the 34-cent level could provide substantial resistance to the rally, while the 33-cent level should provide support. The trend in soybean prices will remain the most significant influence on soybean oil prices over the short term. However, the monthly National Oilseed Processors Association (NOPA) report, scheduled for release on Thursday, should provide some fundamental input to the short-term trend.

Palm oil prices fell about 1/2 percent (December contract -14 ringgit per tonne). In addition to the bearish fundamental news, overnight weakness in crude oil prices and expectations of bearish cargo surveyor data on Thursday also contributed to the selling. Selling above the psychologically critical 3,000-ringgit level in the benchmark contract also weighed on prices. It was the third consecutive day that prices tried to rally above that level and failed. If the benchmark contract fails to move above that level in the next couple of days, it could fall back down to 2,950 ringgit to fill the small gap between the close on October 9 and the low of October 13. If the benchmark price can breach the 3,000-ringgit level, the next level of technical resistance would be the mid-September high and upper Bollinger band, which are both close to the 3,100-ringgit level. In addition to the five-day exponential moving average (2,952 as of the close on Wednesday), the benchmark contract may also find support at the 2,900 ringgit level.

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