Palm, soy oil prices 'to recover from' 5-year lows

Commentators voiced hopes for vegetable oil prices, seeing low values whetting demand, even as futures in palm oil and soyoil fell to their lowest levels since 2009.

Palm oil futures for November touched 2,066 ringgit a tonne in Kuala Lumpur on Tuesday, the lowest price for a benchmark contract since October 2009.

In Chicago, September futures in rival vegetable oil soyoil touched 32.51 cents a pound, the lowest for a spot contract since July 2009.

The declines have been blamed on the prospect this year of a record US harvest of soybeans, the source of soyoil, while palm oil output has beaten earlier expectations as fears have receded of an El Nino weather pattern, which causes dryness in the major South East Asian production regions.

'Some price recovery'

However, Oil World downplayed the threat of further price falls, underlining the boost offered by cheap prices to consumption of vegetable in food and, in particular, energy uses.

"Additional price losses in vegetable oils are very limited, in our opinion, because at these prices demand from the energy sector has picked up," the German-based analysis group said.

Oil World highlighted in particular the boost to production of biodiesel, which is made from vegetable oil, in Argentina, the top exporter of soyoil as well as soymeal, the other main soybean processing product, which is used in feed.

Argentine biodiesel production may rise some 40% to record 2.8m tonnes this year, the group said, noting "unusually high" exports of the biofuel last month and so far in August.

Within the palm oil sector, consumption in top producer Indonesia is being spurred by low prices.

"We do not see a bullish trend in vegetable oil prices but expect some recovery from current very low levels," Oil World said.

"Improved buying activity is likely to create a bottom from which some moderate price recovery can occur."

'Could bounce at any time'

Separately, New York broker Jefferies also questioned a drop in soyoil prices which had "extended longer and deeper than we had forecast".

"This market is oversold in our view in the near-term and could bounce at any time," said Anne Frick, senior oilseed analyst at Jefferies.

Factors which could catalyse a recovery in soyoil prices include the development of an El Nino, which remains on meteorologists' radar, and which would lift rival palm oil, or moves by US lawmakers or environmental officials to encourage biodiesel use.

"Cool weather may reduce [US] soybean oil yields this year if below normal temperatures continue through the pod filling period into mid-September," she said.

Ms Frick also highlighted Argentina's rising biodiesel production, saying that "the increased usage of soybean oil for biodiesel in Argentina and Brazil may push a larger share of the world's soyoil exports to US origin".

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