Bullish Fundamentals and Cash Prices Drive Futures Higher

Vegetable oil prices continued to rally as strength in crude and an improvement in short-term fundamental data for palm oil supported buying. Rising cash vegetable oil prices driven by lower-than-expected soybean oil supplies in Brazil and, to a lesser extent, Argentina, are contributing to the rally in vegetable oil futures. Crude oil prices were higher during the overnight session, but collapsed by almost $1 per barrel at the U.S. opening before a volatile session ultimately resulted in a rally that drove futures to fresh highs at the close of the U.S. agricultural session. Positive news about vaccines for the coronavirus also contributed to the positive tone in crude and vegetable oil markets.

Soybean oil futures rose about one percent (August contract +34 basis points per pound), which left the September contract just below the psychologically important 29-cent level. Buying at the five-day exponential moving average provided support, while fund spreading also contributed to the gains for the second consecutive day. If soybean oil futures continue to rally on Thursday, futures will break out of the recent trading range and could test the 200-day moving average, which is about 1 1/4 cent above the settlement price on Wednesday.

Palm oil prices jumped another 2 1/2 percent (September contract +62 ringgit per tonne) to settle at the highest level since February 12. Cargo surveyor data indicating the volume of shipments during the first 15 days of July was only 10 percent below the same period in June triggered the rally. The 10-percent decline represents a relative improvement from the 17-percent drop reported for the first 10 days of the month. A report from the Southern Peninsular Palm Oil Millers Association indicating production during the first 10 days of July fell by about 17 percent from the same period in June also supported prices. The rally left futures above the upper Bollinger band for the second consecutive day, which is typically a trigger for short-term profit-taking. However, if palm oil shipments remain above expectations and production remains below expectations, the move above the Bollinger band may be an indication of the strength of the developing move higher.