Soybean futures surged almost two percent (November contract +16 1/4 cents per bushel) on Thursday as growing concerns about the impact of developing dryness in parts of the Midwest combined with oversold conditions to trigger fund buying. Position squaring ahead of the United States Department of Agriculture’s (USDA’s) World Agricultural Supply and Demand Estimates (WASDE) report also contributed to the rally. The most-actively traded November contract bounced off the lower trend line to move through the 38-percent Fibonacci retracement level and the 10-day moving average to leave November futures at the highest closing price since July 30. Concerns about rising trade tensions continue to weigh on prices, but rising prices in Brazil and trade data from China that indicated soybean imports in July were the largest in the last year helped mitigate some of those worries. Rising crush margins in China also contributed to the optimism about a potential bottom for import demand in China. Funds were reported buyers of 7,500 soybean contracts, 3,000 soybean meal contracts, and 8,000 soybean oil contracts.

The gains in soybean futures and fund spreading combined to drive soybean oil futures about 3 1/2 percent higher (December contract +101 basis points per pound) on life-of-contract high volume that was almost double the 10-day moving average. The move was the largest daily increase since February 28, 2017, and left the most actively traded December contract at its highest level since April 22. Soybean oil futures smashed through the 10-day, 20-day, and 50-day moving averages and above the upper Bollinger band. Prices tested the lower Bollinger band and the psychologically critical 28-cent level on Tuesday and Wednesday, but have rallied 1 1/2 cents per pound over the last two days.

The recent strength in world vegetable oil prices contributed to the bullish move, as did the announcement that the Chinese government would remove soybean oil, rapeseed oil, and palm oil from its import tariff quota management. While trade tensions make it unlikely that Chinese buyers will turn to the United States to import soybean oil, the move by the government indicates that vegetable oil imports to China could grow substantially, which could tighten world vegetable oil supplies. In addition to the fundamental developments, the funds have firmly established a relatively small long oil share position and if they continue to build that position prices could test the key 30-cent level next week. However, concerns about the WASDE report and the potential for the Environmental Protection Agency (EPA) to reduce demand from the biofuel industry by issuing waivers under the Small Refinery Exemptions (SRE) program, may limit the gains in the short term. In addition, profit-taking following the sharp move higher could also weigh on prices on Friday ahead of the data from the USDA.

Palm oil futures gained about 1 1/2 percent (October contract +31 ringgit per tonne) on Thursday to settle at the highest level since May 29. Overnight strength in crude oil and soybean oil prices contributed to the gains, but short covering and position squaring ahead of the Malaysian Palm Oil Board’s monthly supply and demand reports also drove prices higher. It was the fourth consecutive day of higher prices for palm oil futures, which have jumped almost 10 percent since setting a low just below 1,950 ringgit on July 10.

Strength in vegetable oil prices on the Dalian exchange contributed to the sharp rallies in palm oil and soybean oil futures on the Malaysian and U.S. exchanges. Palm oil futures gained more than 1/2 percent (September contract +28 yuan per tonne) to settle at the highest level since May 31. Soybean oil futures rose more than 1 1/4 percent (September contract +72 yuan per tonne) in the fifth consecutive day of gains and 12^th day in the last 14 that prices have moved higher following the breakout from the narrow trading range futures were in for most of July. The rally left the most actively traded September contract at its highest closing price since March 13, but selling above the psychologically important 5,800-yuan level limited the gains. Concerns about soybean oil supplies due to rising soybean prices in Brazil and trade tensions between the Chinese and U.S. governments have triggered the rally and driven the Ministry of Commerce to remove the major vegetable oils from its tariff quota management system.

Canola futures gained more than 1/2 percent (November contract +C$2.80 per tone) on the strength in world vegetable oil prices and the rally in soybean futures. It was the fourth consecutive day of gains in canola futures, which have risen above the critical C$450 per tonne level for the first time since July 26. However, improving conditions in some of the drier parts of the Canadian Prairies and technically-driven selling at the upper Bollinger band limited the gains.

Rapeseed futures also rose about 1/2 percent (November contract +€2.00 per tonne) on the strength in world vegetable oil prices. Technically-driven buying at the 10-day and 20-day moving averages also contributed to the gains.