Soybean Oil Futures Advance despite Improved Weather Forecasts
On Thursday, edible oil prices were mixed, as weakness in palm oil futures was met by an afternoon advance in soybean oil. Benchmark soybean oil futures were volatile, moving both higher and lower, before losses were pared amid ongoing fund soybean oil/mean spreading.
Prices for nearby soybean oil closed about one percent higher (July contract +57 basis points per pound). Deferred soybean oil contracts through the end of the year also increased one percent (September contract +70 basis points).
More favorable weather forecasts calling for rain in the Midwest growing region over the next week kept the day’s gains in check. Drought conditions are likely to improve in the heart of the Corn Belt, with projections for excessive precipitation and cooler temperatures in southern and eastern areas of the region through the end of the month. Eastern Kansas and parts of southeastern Iowa and Indiana should see the greatest amount of rain through June 26.
Apart from the more beneficial weather, the market also digested the latest round of U.S. soybean oil export sale data. On Thursday, the United States Department of Agriculture (USDA) reported net U.S. soybean oil net sales for the week ended June 17 totaled 2,400 tonnes, up 200 tonnes from the week prior and 17 percent from the four-week average. However, outstanding sales dropped to 24,800 tonnes, down 15 percent from last week and 89 percent (209,000 tonnes) from the same week last year.
Additionally, USDA reported U.S. soybean oil exports totaled 6,800 tonnes, decreasing 15 percent on the week and 26 percent from the four-week average. The export destinations were primarily Jamaica and Canada. Cumulative U.S. soybean oil exports totaled 650,800 tonnes, down nearly 32 percent (301,900 tonnes) from the same week last year.
Commitments for 2020/21 increased slightly on the week to 675,600 tonnes but were down 43 percent (510,900 tonnes) from the same period a year ago.
For three of the last four sessions, palm oil futures in Malaysia were lower, closing down 0.7 percent on Thursday (September contract -24 ringgit per tonne) on stronger-than-expected production estimates for June. Losses in deferred palm oil contracts through 2022 were larger (January 2022 contract -59 ringgit per tonne).
Palm oil prices were under selling pressure on reports the Malaysian Palm Oil Association (MPOA) expects output from June 1-20 may have climbed 15% on the month. Indonesia’s decision earlier this week to cut its export tax on palm oil by $80 per tonne also continued to weigh on the market. The drop in Indonesia’s tax levy could increase competition for Malaysia’s exports. Additional downside risk for the palm oil market remains in place since Malaysia and Indonesia are entering their seasonal production cycles, which means there is a tendency for output to rise through September or October.