Vegetable oils may be a better bet than oilseeds themselves for investors thanks to supply squeezes fostered by Malaysian rains and a tumble in the pace of US soybean crush ahead.

Rabobank analysts raised their forecasts for palm oil futures and forecast that soyoil price would "continue to outperform the soybean complex".

The revisions came as US Department of Agriculture officials said that the average American soyoil price over 2010-11 "could set a new record" as edible oils, which over the last year have seen some of the strongest inflation of all assets tracked by American statisticians, continue to appreciate.

"There is little indication that those price increases will end soon," the USDA said.

'Rapid decline in stocks' 

Vegetable oil users should not lulled into a false sense of security by data showing domestic soyoil stocks at 3.5bn pounds in December, "as high as they have ever been", the department added.

America's pace of soybean crushing was poised to slow, as prices of the oilseed rise too in the face of supplies weakened by a "torrid" pace of exports.

"An outlook for a rapid decline in [soyoil] stocks is shaping up," the USDA said, restating a forecast of a 22% fall to 2.6bn pounds in domestic inventories by September.

Firmer consumption would also play a role in sapping soyoil stocks, with biofuels groups expected to take increasing supplies - after the US reinstated a blender's tax credit for biodiesel, which is made from vegetable oils – and exports, largely to China, running at a record pace.

Lowest since 1970s 

Indeed, on Rabobank calculations, US soyoil stocks will end 2010-11 at 5.4% of consumption, the lowest level in 34 years. A low stocks-to-use ratio indicates tight supplies, implying producers can demand higher prices of buyers.

And this factors in the current USDA estimate, which will require further downgrades if America's current rate of soyoil exports holds.

"Clearly the [current] pace of US and China's demand cannot be sustained to reach USDA's forecast, and must be further reduced through higher prices," the bank said.

Prices of palm oil, an alternative to soyoil in many uses, would also be supported, Rabobank said, lifting its forecast for the average prices of the vegetable oil's futures, as traded in Kuala Lumpur.

Soyoil vs palm oil 

Indeed, with Malaysia's palm oil supply being held back by heavy rains, blamed on the La Nina weather pattern, the vegetable oil looked likely to avoid a return to its historic discount to soyoil.

"The soyoil spread over palm oil will continue to trade at a reduced rate," Rabobank said.

However, prices will weaken in the second half of 2011, as Malaysia's rates of palm oil output recovered to levels "significantly above average".

The USDA on Wednesday cut its estimate of palm oil stocks in Malaysia, the second ranked producer, at the of end 2010-11 to an eight-year low of 950,000 tonnes.