Soybean Oil Futures End the Year Up 72% from Pandemic Low

Gains in oilseed prices continued to drive vegetable oil markets higher on the last trading day of 2020. Soybean oil prices posted substantial gains, but the palm oil market was mixed as bull spreading weighed on the curve’s back end. For the year, soybean oil prices gained 22 percent but rose almost 72 percent from the March low of 24.68 cents. Palm oil futures added 18 percent for the year and gained nearly 86 percent from the May low of 1,939 ringgit. The benchmark contracts in both markets finished at life-of-contract highs as concerns about growing conditions in South America and world vegetable oil supply continue to support buying. In 2021, The Jacobsen expects the focus to shift from supply concerns to the substantial increase in demand it is projecting from the U.S. biofuel industry.

Nearby soybean oil prices gained more than 1 1/4 percent (March contract +54 basis points per pound) but bull spreading muted gains in the summer 2021 contracts (August 2021 contract +29 basis points). Selling above the upper Bollinger band limited gains, while buying just above the five-day exponential moving average reversed light selling at the overnight session’s opening. The rally left the benchmark contract well above the psychologically important 42-cent level. If soybean futures continue to move higher, soybean oil will follow and will likely continue to trade between the upper Bollinger band and the five-day exponential moving average.

Nearby palm oil futures gained less than 1/2 percent (March contract +12 ringgit per tonne), but bull spreading weighed on contracts beyond the August 2021 delivery. Continued strength in the ringgit against the dollar limited gains on Thursday despite increases in vegetable oil prices on the Dalian exchange and overnight strength in soybean oil prices. Despite the ringgit gains, the spread between the March soybean oil and palm oil contracts continued to widen, ending the year at 1 3/4 cents. While the spread is just below the recent high of two cents, it has been in a firm uptrend since bottoming below 1/2 cent on December 1.