Soybean Oil Falls on Weakness in Soybean Futures

Soybean Oil Falls on Weakness in Soybean Futures

Vegetable oil prices were mixed on Wednesday, with soybean oil prices falling on weakness in soybean futures due to profit-taking following Tuesday’s bullish USDA data. Palm oil prices stabilized and were mostly narrowly mixed, but traders’ liquidation of bull spreads drove prices in the back end of the curve substantially higher. The decline in soybean oil futures pushed the spread between March soybean oil and palm oil contracts back below one cent, setting up a trading range between 1 1/2 cents and parity. The spread between soybean oil and heating oil fell to just below $1.61 per gallon, despite weakness in energy prices. The Jacobsen believes the spread could continue to fall to around $1.50 before a potential rebound.

Nearby soybean oil futures dropped by about one percent (March contract -45 basis points per pound). However, the liquidation of bull spreads limited the decline in deferred contracts (December contract -24 basis points). Selling above the five-day exponential moving average and a sharp decline in soybean futures during the U.S. session left the benchmark contract to settle 1 1/4 cents below the day’s high. However, buying below the 42-cent level limited the decline. In the short term, The Jacobsen expects the 42-cent level to provide some support, but if palm oil prices or soybean futures continue to trade lower, soybean oil prices are likely to follow. Short-term resistance is likely at the five-day exponential moving average (42.68 cents) and 43 cents.

Palm oil prices were narrowly mixed (March contract -3 ringgit per tonne). However, like the soybean oil market, traders’ liquidation of bull spreads drove gains in deferred contracts (December contract +29 ringgit). Selling at the five-day exponential moving average stalled an early attempt to rally on overnight strength in soybean oil futures. However, buying below Tuesday’s low limited the decline. The Malaysian government announced it would maintain the eight percent tax rate on palm oil exports through February, adding to concerns about a sharp slowdown in export demand. In addition to concerns about export demand, governmental restrictions on movement to slow the coronavirus spread could also reduce domestic use, pushing some analysts to expect a build in inventories in January. However, the rules may also impact palm oil production through either direct reduction of production capacities for plantations and processors or by limiting the availability of migrant labor needed to harvest palm fruit.

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