Vegetable oils just couldn’t stay on the sidelines for long.
After two sessions when soft commodity price gains took centre stage in ag markets, helped by factors including a rebounding Brazilian real, vegetable oils muscled their way back into the limelight.
In Kuala Lumpur, palm oil futures for May ended up 1.6% at 4,125 ringgit a tonne, the second highest finish ever for a benchmark contract, behind only the 4,330 ringgit-a-tonne close set on March 3 2008.
The gains reflect in part ideas that Malaysian palm oil stocks may not be in for a quick rebuild from historically low levels, given threats to output from the likes of heavy rains, attributed to La Nina, in South East Asian plantations and labour shortages blamed on Covid-19 restrictions.
But the strength in energy markets, although Brent crude eased on the day, is also supporting ags such as vegoils used in making biofuels (biodiesel in this case).
“Prices were seen rallying for eight consecutive sessions due to strength in crude and soyoil along with tighter inventories,” said CHS Hedging.
‘Strong domestic demand’
In Chicago, rival vegoil soyoil for May gained 1.4% to 55.36 cents a pound, a fresh eight-year closing high for a nearest-but-one contract.
The US Department of Agriculture itself highlighted robust demand, saying “soybean oil use has been buoyed by strong domestic demand for biodiesel and a recovery in crude oil prices.
“Soybean oil used in biodiesel production continues to see strong levels for feedstock into the biodiesel production process with December seeing total soybean oil used at 744m pounds.
“Soybean oil used for biodiesel production during the first quarter of the marketing year,” as started in October, “totalled 2,150m pounds, up 32% from the 2019-20 marketing year”.
US soyoil stocks, meanwhile, in January at 1.88bn pounds were down 5.5% year on year.
… and this when there are worries over a supply squeeze ahead, thanks to the drain on soybean supplies exacerbated by a bumper export programme, after a disappointing harvest.
“Due to the limited supply of soybeans, the ability of the domestic crush sector to continue at its record pace is limited,” the USDA cautioned.
Not that this would be so much of a setback for soymeal, demand for which is seen as decent, but not as outstanding as that for soyoil. Yet, with the quest for oil meaning more meal produced too, that means some pressure on meal prices, in a bid to find a home.
Soymeal for May closed down 1.0% at $400.70 a short ton.
‘Exports to increase’
With soymeal accounting for a greater proportion of the total value of soy crushing products than soyoil (although that advantage is shrinking), soybean futures ended a touch lower in the end, by 0.25 cents at $14.13 ¼ a bushel for May.
(The oil share of the total value of soybean processing products, for the record, ended at 40.90%, the highest on a nearest-but-one contract basis in nigh on nine years.)
Soybeans underperformed corn, which edged 0.1% higher to $5.39 a bushel for May, overshadowed by growing African swine fever worries in China, but supported by ideas of decent US exports ahead nonetheless.
Terry Reilly at Futures International said that “we look for US export inspections for corn to increase over the next several weeks as imports shift away from soybeans” - a seasonal trend, as Brazil, its supplies replenished by harvest, returns to pre-eminence in exports.
‘Important precipitation event’
Wheat was, as often appears the case of late, the weakest link among Chicago’s big three contracts, ending down 0.6% at $6.38 ½ a bushel for May.
The dip was widely attributed to easing worries over dryness-beset southern Plains hard red winter wheat crops, with rains in the forecasts in the US.
“A significant and important precipitation event is still expected tonight through Sunday from the hard red winter wheat region into the southwestern Corn Belt and northern Delta,” said Steve Freed at ADM Investor Services.
Benson Quinn Commodities said that the “US southern Plains will receive good and widespread rains in the five-day outlook.
“Precipitation patterns are improving in the west as winter crops come out of dormancy and look to improve soil conditions going into spring planting.”
That said, Kansas City hard red winter wheat itself for May eased a more modest 0.1% to $6.03 ½ a bushel, reluctant to test its 100-day moving average a little below.
Among soft commodities, arabica coffee kept the faith, adding 0.5% to 133.00 cents a pound for May to ensure a clean sweep of positive sessions this week, with an aggregate gain of 3.2%.
Coffee futures this week received “support from the weakening dollar”, besides by “maintaining positive fundamentals related to lower global supply and the possibility of resumption of consumption in the US and European countries” as vaccination programmes roll out, said Brazil’s CNC producers’ group.
Honduran export data was also supportive, in showing a decline of 27% in shipments year on year in the October-to-December period, to 1.96m bags, raising ideas of bigger problems than had been thought caused by hurricanes in November, and Covid impacts on labour availability.
With Honduran coffee historically (although now overtaken by Brazil origin) accounting for most of the stocks held for delivery against New York futures, the market can be particularly sensitive to the country’s supply fortunes.
‘Dampened the price’
However, New York raw sugar for May eased by 1.4% to 16.36 cents a pound, more in line with softness in crude oil and in Brazil’s real on the day.
“The prospect of high shipments from Brazil, coupled with a weak real, is a factor that has dampened the price in the last two weeks,” said Commerzbank, if noting that “sugar remains in short supply at present”, a factor supporting prices at relatively high levels by recent standards.
The bank also noted Datagro forecasts showing an improved supply balance for 2021-22, after the 2.8m-tonne deficit expected this season on the analysis group’s estimates.
Datagro envisages improved EU and Thai output, “plus continued high production in India, leading to a small global surplus” in 2021-22.