Vegetable oil prices had a mixed 2013.
Soyoil futures tumbled 21% in Chicago, under pressure from improved
supplies after a better US soybean harvest in 2013, and with the forthcoming
harvest expected to boost availability from South America too.
This was against a background of an improvement in global overall
of vegetable oils overall, with output to rise by 8.0m tonnes to 168.9m tonnes in 2013-14, according to the US Department of
Palm oil managed to buck the trend, rising 9.1% over 2013,
thanks to its own particular dynamics, with world output falling short of initial
expectations, helping Malaysian inventories falling below 2m tonnes, and fostering
a revival in Kuala Lumpur (MDEX) futures from their lowest since 2009.
That lowered significantly the discount of palm oil to soyoil.
But can this trend continue? And how will soyoil prices fare against expectations
of a further increase in US soybean output?
Bank of America Merrill
"US biodiesel production runs at about 100,000 barrels a day
and has been rising strongly in the first half of 2013, and the source of input
has predominately been soyoil.
"As soybean prices came down significantly from the year
prior, from peaking at $17.50 a bushel in July 2012 to under $13.00 bushel
currently, biodiesel production from soybeans ramped up.
"US biodiesel production from soyoil is growing rapidly,
albeit from a low base, and we expect this trend to continue.
"This source of consumption growth will likely lend support
to soybean prices near term, until news of new bumper soybean crops from
significantly expanded acreage in first Latam and then perhaps the US hit the
"Soyoil prices are nearing, but have not reached, the minimum
retracement seen in the past 10 cycles, which would take prices of the nearby
contract down to 36.36 cents a pound.
"There is history based on the recent cycles and common retracements
that projects a low at our old, longstanding target of 34 cents. However, the
current price cycle is very extended historically - based on the average
monthly soyoil price at Decatur, this cycle has lasted for 57 months versus an…
average of about 46 months
"There has been a pick-up in US soyoil exports in December. Usage
of soyoil for methyl ester [biodiesel] has increased as well, reaching 551m
pounds in October, but it may fall off sharply beginning this month with the
expiration of the $1 a gallon blenders' tax credit.
"We do not yet see the fundamental catalyst to turn soyoil
prices higher but we are on the lookout for an upturn. The extended bear
market, the slowing price decline even in the face of bearish news, timing
indicators and the fact that speculators are still heavily net short are all caution
flags for bears.
"We do not see a sharp turn higher in soyoil prices, but
rather a rounded bottom with a fairly modest price advance up to resistance at
42 cents a pound and possibly higher."
"After a year in which strong soymeal prices drove the
global soybean crush, soyoil prices should return to prominence in 2013-14.
"Strong soymeal prices and stiff competition from other
vegetable oils pressured the oil share of global crushing revenues despite
declining US inventories. However, we expect this trend to reverse as Argentine
soymeal exports ease the call on US meal and rising demand tightens the global
vegetable oil balance.
"Rising demand should keep soyoil stocks comparatively
tight. Despite continued declines in US food consumption of soyoil, exacerbated
by the FDA's recently-announced restrictions on trans fats, we see US soyoil
demand rising 2% year on year, supported by rising US biodiesel production
"Even as biodiesel production has ramped up in recent
months, soyoil's share of the overall biodiesel feedstock continues rise. Soyoil
accounted for 54% of US biodiesel production in August, the highest level since
"However, a push to produce ahead of the YE blending credit
expiration may result in front-loaded 2013-14 US soyoil demand.
"China will likely continue to exert a pull on global soyoil
supplies, though Argentina may prove a willing supplier. With Indonesia's
proposed biodiesel mandate taking an increasing amount of palm oil off of the
global market, we expect China's demand for soyoil to rally as much as 9% year
"The overall oilseed market will remain bearish. Production
of the major oilseeds is expected to increase by 24m tonnes in 2013-14 to 484m
tonnes, increasing 5.4% year on year.
Forecasts for quarter
average, front MDEX futures contract
Rabobank forecasts for palm oil prices, 2014
Q1: 2,600 ringgit a tonne
Q2: 2,625 ringgit a tonne
Q3: 2,500 ringgit a tonne
Q4: 2,600 ringgit a tonne
"Strong production gains are expected for soybeans and
sunflower oilseeds. An increased supply of oilseeds in 2013-14 would strengthen
the vegetable oil balance sheet, with stocks-to-use ratios rising from 12% to
"The palm oil discount to soyoil will remain tight at $100-120
a tonne. The bearishness in the wider oilseed complex will drive the palm-soybean
spread to below-historical levels.
"This reduction would lead to [palm oil] demand erosion to
some extent as consumers find other oils relatively more affordable.
"Biodiesel demand is expected to be much stronger than in
2013. Indonesia has already rolled out a B10 (10% biodiesel in diesel] mandate,
while Malaysia is considering implementing a B7 programme.
"Based on the mandate levels, the demand from these two countries
could amount to more than 3m tonnes of additional demand for vegetable oil.
"Undoubtedly, biodiesel programmes are among the strongest
bullish driver for palm prices in 2014, but delays in implementing these
mandates… could dampen the impact."