Dec 5 / Ignacio Espinola

Palm and Soybean Oil Market Updates

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• US soybean oil exports above expectations.

• Indonesia will implement the B40 rule for biodiesel blend.

• Malaysian flood issues.

• Funds activity.

Current Scenario

Price recap

Source: Reuters, Hedgepoint

Top Palm Oil Players

Source: USDA

Source: USDA

Soybean oil situation

This year, the US has been exporting soybean oil at a higher pace versus what was expected for this period: 397k mt versus 272k mt expected by the WASDE for the same period. This also contributes to decrease the local domestic stocks, which are at the lowest levels since 2012/13 crop.

Last October was a record month for US crushers, who ended crushing a total of 5.87 mmt, which represents +7.1% above last year and +6.7% versus the amount crushed during last September (5.08 mmt). The expectation is that the numbers for November and December are also going to be big considering the large soybean meal export program in US, which will also increase the soybean oil availability. Price wise, soybean oil is trading at its biggest spread compared to palm oil, which also boosts the cash market, incentivizing sales.
US Soybean Oil Export Sales

Source: USDA

Indonesia plans to introduce B40 biodiesel next year

Indonesia’s wants to implement the 40% mandatory biodiesel mix with palm oil-based fuel, B40, on January 1st next year. Currently, the biggest palm oil producer uses a 35% blend of palm oil-based biodiesel.

This increase will allow the Asian country to reduce carbon dioxide emissions by about 40 million metric tons.

Indonesia currently consumes 11 mm for his B35 and this 5% increase will add 2.9 mmt more, leaving a 13.9 mmt palm oil consumption per year.

Finally, the Indonesian government has increased the export taxes for the crude palm oil, CPO, from a 124 USD/Mt to 178 USD/Mt, which adds support to the prices.

Malaysian Palm Oil 

Malaysian Palm Oil futures prices have been in a bullish trend over the last 2 months, following the strength in the Dalian Palm Oil market. Also, the strength in the DXY index is another factor that has been given support to the palm oil prices, which are being traded in the Bursa Malaysia Derivatives Exchange in ringgit, the local currency.

There are some concerns regarding the local crop which has been suffering one of the worst floods in the last 20 years, especially in the east coast and the northern parts of peninsular Malaysia.

More than 10.000 people had to be evacuated. There was severe infrastructure damage, and some palm oil groves will temporally affect production. This also contrasts with one of the highest November exports in the last 10 years, which will bring tightness to the local stocks. Consumers, especially for the next low production season which occurs in Jan-March, are keeping a close eye on this market.
Palm oil tracks the price movements of rival edible oils, as it competes for a share of the global vegetable oils market.

Below graph shows the price movement between Palm Oil and Soybean Oil in three different markets: Chicago, Malaysia and China exchanges.

Over the last 3 months, Soybean Oil has taken the first place as the cheapest oil in the market, leaving Palm almost at par with Dalian Soybean Oil and following the price trend of the Chinese Dalian Palm Oil market.

The spread between palm oil and soybean oil prices has reached its highest level in 40 years (March 1984). This high spread could make consumers shift from Palm Oil to Soybean Oil, which could help absorb the surplus of Soybean Oil, narrowing the actual spread.

Price in USD/Mt comparison

Source: Reuters

Spread evolution between Palm Oil and Soybean Oil, USD/Mt

Source: Reuters

Funds activity

Over the last weeks, the whole soybean complex has entered a bearish trend following three different fundamentals. The first one is a strong Dollar, represented by the DXY index which has been on a bullish trend since the US elections resulted in Donald Trump triumph. The second reason is the weather, with good forecasts that bring hope for a large production in South America, which could lead to a record supply in 2024/25 crop. The third reason is the fear of new tariffs over China products from the next US administration, which could potentially affect the overall agricultural commodity markets.

Non-Commercial (Specs) – Soybean Complex

Source: CFTC, Reuters

Taking a deeper look at the soybean complex

On the soybean side, funds have increased their short positions from 70k contracts into 90k contracts, leaving a short position close to the lowest part of the 5-year average range, but still far away from their record short position of 195k contracts. Price wise, when we compare from the Wednesday 19th November to Wednesday 26Th November, meaning the dates in between one COT report and the other one, soybeans futures spot price decreased in 15 cents/bu, 2% down.

Special remark on the soybean meal funds activity as they have increased their short positions up to 82k contracts, only 4k contracts less than the 10-year lowest level at 86k and far away from the last 5-year average range. Price wise, soybean meal futures spot contract had a reduction of 0.5 usd/st in the period between the last COT and the previous one. That represents only 0.2% price reduction.

On the soybean oil side, the funds increased their short positions from 6k to 24k contracts, still far away from the 10-year lowest level at 114k contracts but close to the lowest level in the last 5 years for the same period. CBOT wise, the soybean oil contract for December in Chicago had a decrease of 2.25 cents/Lbs, or 5%.

Price revolution in CBOT

Source: Reuters

Non-Commercial (Specs) – Soybean 

Source: CFTC

Non-Commercial (Specs) – Soybean Meal 

Source: CFTC

Written by Ignacio Espinola
ignacio.espinola@hedgepointglobal.com
Reviewed by Luiz Roque
Luiz.Roque@hedgepointglobal.com
www.hedgepointglobal.com

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