Soybean Oil Prices Rally on Fund Spreading

Vegetable oil prices were mixed on Tuesday as weakness in crude oil prices and bearish data weighed on palm oil while fund spreading supported soybean oil. Crude oil rallied from overnight lows during U.S. trading hours, which also helped support soybean oil prices, but ended U.S. agricultural trading hours slightly lower. The direction of crude oil in the short term remains unclear as economic activity seems to stay on an upward trajectory despite the growing number of coronavirus cases and some governments’ resumption of less stringent measures to slow the pandemic than the initial shutdowns.

Soybean oil futures rose more than one percent (August contract +33 basis points) on the liquidation of short oil share positions triggered by light profit-taking in soybean futures. The gains left the most actively traded December contract at the highest level since March 6 and above the psychological 28.5-cent level. Volume has risen slightly in the last three sessions but remains well below the 10-day moving average, which may indicate the rally is nearing a top. Selling at the upper Bollinger band limited the advance on Tuesday, which may also suggest at least a pause in the gains in the very short term. With the weather outlook slightly less bullish for soybeans, profit-taking across the complex may continue, which may also weigh on soybean oil. However, if traders believe soybean meal futures will decline relative to soybean oil, fund spreading could support soybean oil prices even as the whole complex moves lower.

Palm oil prices fell by about 1 1/4 percent (September contract -32 ringgit per tonne) to erase most of the gains posted on Monday. Resistance at the 2,400-ringgit level contributed to the weakness as the most actively traded September contract failed for the third consecutive day to breach that level. A report from the Malaysian Palm Oil Association estimating Malaysian output rose almost 13 percent in June from May also contributed to the selling. A presentation from an executive at an Indian edible oil refiner suggested palm oil imports into the country could fall 20 percent year-over-year. If Malaysian palm oil shipments in July do not remain at elevated levels, the seasonally rising output will build stocks and pressure prices over the balance of the marketing year.