Soyoil Prices ‘to Support’ Palm Values – Whatever Malaysia Data Shows

(Agrimoney) –  The improvement in US soybean harvest prospects has curtailed the prospect of a surge in palm oil prices, but values of the vegetable oil will remain supported by values of rival soyoil, MIDF said.

The Malaysia-based broker said that “in view of better weather” in the US, which has boosted ratings of the country’s soybean crop, it had “temporarily abandoned the possibility of a palm oil price surge above 3,000 ringgit a tonne by end-December”.

MIFD early last month forecast that Kuala Lumpur futures could hit this level, assuming US dryness seen in July continued, adding that there was “little downside risk to our estimate”.

Soybeans are the source of soyoil, a rival to palm oil in many uses.

‘Ongoing concern’

Nonetheless, MIFD stood by forecasts of palm oil prices averaging 2,725 ringgit a tonne this year, and in 2018 too, flagging some jitters over prospects for South American soybean sowings.

In Brazil, where seedings start in earnest next week, “the weather has been dry in central part of the country,” while Argentina, where sowings begin next month, “has received excessive rains in Buenos Aires and Entre Rios”.

“The ongoing concern on soybean production has kept soyoil price strong at above 35.0 US cents per pound in the Chicago market,” with the best-traded December contract standing on Friday at 35.36 cents a pound, albeit down 0.2% on the day.

This resilience in soyoil values “is supportive to palm oil” prices, the broker said.

Data ahead

Indeed, the strength in soyoil values – which for December were trading at the equivalent of $779 a tonne in Chicago – “should limit downside” to palm oil prices, even if Malaysian data on Monday show a rise in stocks of the vegetable oil, as analysts foresee.

The data, from the Malaysian Palm Oil Board, should show a rise of 6.5% month on month, to a 17-month high of 1.9m tonnes in Malaysian palm inventories, according to a Reuters poll.

MIDF sees the figure coming in higher still, at 2.1m tonnes, adding that this implied that the “palm oil discount against soyoil should widen.

“Having said that, the strong soyoil price should limit the impact of higher inventory to the palm oil price.”

Biodiesel dynamics

Kuala Lumpur palm oil futures for November on Friday closed down 0.7% at 2,762 ringgit a tonne, equivalent to $658 a tonne, struggling to confirm a foothold above their 200-day moving average of 2,770 ringgit a tonne on a continuous chart.

However, the contract remained up 2.1% for the week, lifted by factors including hopes that the European Commission, which on Thursday unveiled a cut in its tariff on imports of Argentine biodiesel, would do the same to buy-ins from Indonesia too.

(Biodiesel is manufactured from vegetable oils, largely palm oil in Indonesia.)

By contrast, many observers attribute strength in Chicago soyoil prices at least in part to the prospect of enhanced domestic demand for the vegetable oil, after Washington proposed hefty levies on imports of Argentine biodiesel.