Palm Oil Tops 4,100 Ringgit as Veg Oil Rally Continues

Vegetable prices continued to rally on Friday as concerns about dryness in Argentina continued to support soybean oil prices. Tight stocks and expectations that palm oil exports will accelerate in the coming weeks drove buying in palm oil. The gains lifted benchmark contracts in both markets to fresh life-of-contract highs and propelled palm oil to its largest weekly increase in more than five years. The moves left the spread between the May soybean oil and palm oil contracts to just below 10 cents, but the market tested the nine-cent level for the second consecutive day. The July spread fell to 11.4 cents. The spread between soybean oil and heating oil (HOBO) rallied to a fresh high just below $2.24 per gallon on weakness in the energy markets.

Soybean oil futures gained about 1 1/2 percent (May contract +75 basis points per pound). Selling at the 54-cent level in the benchmark contract limited gains while buying at the five-day exponential moving average reversed a decline early in U.S. trading hours. The spreads narrowed slightly, potentially suggesting some hesitancy by end-users to extend nearby coverage at the current price level. However, oil/meal spreading by funds continued to support soybean oil prices and drove the oil share for the benchmark contract up to nearly 41 percent. The Jacobsen expects oil share to continue to rally as domestic demand for soybean oil is much stronger than the demand for soybean meal.

Palm oil prices rose more than 1 1/2 percent (may contract +65 ringgit per tonne), but the largest gains occurred in the late summer contracts. The relative performance of the contracts with deliveries during the seasonal increase in palm oil output suggests traders expect export demand to surge during the second half of the marketing year, which is in line with The Jacobsen’s projections. Gains in vegetable oil prices on the Dalian exchange, where soybean oil futures rose about 1 1/2 percent and palm oil futures jumped more than 3 1/4 percent, also contributed to the bullish tone in the Malaysian market. The rally left the benchmark contract above 4,100 ringgit, leaving little technical resistance between the current price and the all-time high of nearly 4,500 ringgit. However, it will be difficult for the benchmark contract to remain above the upper Bollinger band, suggesting the potential for some short-term weakness in the coming days. The benchmark contract could rest the 4,000-ringgit level, which is just above the five-day exponential moving average, without breaking the recent trend of higher prices.