Soybean Oil and Palm Oil Set Fresh Life-of-Contract Highs

Overnight gains in palm oil futures and concerns about South American growing conditions drove buying in the soybean oil market on Monday. The rally narrowed the spread between soybean oil and palm oil futures slightly, but the palm oil premium remains close to the record high. The moves left both markets at life-of-contract highs as world vegetable oil fundamentals remain bullish, supporting cash prices and Chinese vegetable oil futures. The Jacobsen expects prices to remain well supported in the coming weeks, but technically-driven selling could limit gains or trigger a short period of weakness due to profit-taking.

Soybean oil futures gained about 1 1/4 percent (January contract +49 basis points per pound). Despite the life-of-contract high for the benchmark contract, the continuous most actively traded contract fell just short of the recent high set on November 19. Spreading also supported the gains with funds adding about 3,500 contracts to their net long oil share position. Selling just below the 39-cent level, which coincides with the upper Bollinger band, limited the advance while buying at just above the five-day exponential moving average limited early weakness in the overnight session. Short-term resistance is likely at the 39-cent level/upper Bollinger band. The Jacobsen expects short-term support at the five-day exponential moving average (38.24 cents) and then the 38-cent level and the group of moving averages just below that level.

Palm oil prices rose about 1 1/2 percent (February contract +46 ringgit per tonne) on concerns about slowing production, tightening inventories, and the recovery in energy prices. The rally left the continuous most active contract at its highest level since April 2012, but selling at the upper Bollinger band limited the advance. The Jacobsen expects short-term resistance to continue at the upper Bollinger band and then 3,500 ringgit. Short-term support is likely at 3,400 ringgit, and then the clusters of moving averages around 3,380 ringgit and 3,340 ringgit.