A Decline in Chinese Prices Weighs on Vegetable Oils

Vegetable oil futures were lower following the long holiday weekend. Weakness in the Dalian market triggered profit-taking in palm oil, weighing on soybean oil prices in the overnight session. Soybean oil prices rallied shortly after the U.S. opening, but weakness in nearby soybean futures and short oil share spreading by funds prevented futures from posting gains. Selling in the energy market during U.S. trading hours also weighed on soybean oil values. Despite the decline, neither market broke through significant technical levels, suggesting that the trend toward higher prices remains intact in the short-term. That said, if nearby soybean futures consolidate the recent gains, soybean oil prices could remain under pressure. Still, with concerns about dryness in Argentine growing regions expected to grow in the coming weeks, end-users should take advantage of any decline to extend coverage.

Nearby soybean oil futures declined by about 1/4 percent (March contract -8 basis points per pound), but spreading weighed on 2021/22 contracts, which fell by about 1/2 percent (December contract -18 basis points). Selling above the upper Bollinger band drove prices lower from opening highs while selling at the U.S. opening drove prices to the day’s low. The benchmark contract tested the five-day exponential moving average but buying at that level (40.54 cents) drove the contract back above the psychologically important 41-cent level by the end of the day. The Jacobsen expects short-term support for the benchmark contract at 41 cents, the five-day exponential moving average, and the 40-cent level. Short-term resistance is likely at the upper Bollinger band (41.28 cents), Monday’s high (41.39 cents), and the upper Bollinger band on the continuous most actively traded contract’s weekly chart (41.81 cents).

Palm oil prices fell more than 3/4 percent (March contract -27 ringgit per tonne). Weakness in Chinese futures more than offset buying triggered by cargo surveyor data indicating that Malaysian shipments during the first 25 days of December rose 17 percent from the same period in November. Despite the growth in shipments in December, traders are becoming increasingly concerned about Chinese demand in the coming months. A surge in shipments from the U.S. arriving in Chinese ports in December may help offset a portion of the shortfall in Chinese vegetable oil supplies. That said, Chinese import volumes have increased sharply over the last year as the hog herd’s recovery from African Swine Fever (ASF) drives soybean meal demand sharply higher. The decline left the benchmark contract to settle just below the upper Bollinger band and the life-of-contract high set on Thursday. The Jacobsen expects short-term support at 3,500 ringgit and five-day exponential moving average (3,504 ringgit), but there is little below that level until the 10-day moving average (3,427 ringgit). Short-term resistance is likely at the upper Bollinger band (3,556 ringgit), the life-of-contract high (3,569 ringgit), and the intraday high (3,598 ringgit).