Vegetable oils are having a good week.
Chicago soyoil futures for December stood up a further 0.6% at 32.08 cents a pound as of 10:20 UK time (04:20 Chicago time), hitting their highest in nigh on six months, and taking gains so far this week to 3.2%.
This when futures in soybeans themselves have stalled, after their heroics of Monday.
In Kuala Lumpur, palm oil futures for November added 1.5% to 2,751 ringgit a tonne, to take their headway for the week to 2.4%.
‘Production prospects have deteriorated’
The gains are being attributed to a range of factors, including the lower-than-expected July US soyoil stocks number reported by industry group Nopa on Monday, despite a larger-than-forecast crush.
Then there is the cancellation by Chinese buyers of a series of Argentine soyoil orders, reportedly in favour of cheaper Black Sea sunflower oil, although a dynamic which may prove more complex longer term.
After all, as Oil World noted, “global sunflowerseed production prospects have deteriorated.
“Unfavourable weather conditions in July and early August coincided with a key development phase of sunflowers in the northern hemisphere, reducing the yield potential in Russia, Bulgaria, Romania and Moldova.”
And, in China itself, markets appear to be incentivising higher purchases of whatever vegetable oils are available – and chiming with the rumours around last week of 2m tonnes in soyoil restocking.
Dalian soyoil futures for January closed up 0.8% at 6,524 yuan a tonne, only 50 yuan off a contract closing high, and up 2.3% for this week. It was also equivalent to 42.85 cent a pound, well above US values.
Dalian palm oil for January gained 0.8% to 5,736 yuan a tonne, which was a contract closing high.
‘Production prediction rather poor’
This when, for palm oil, output prospects are somewhat in question.
As plantations group Sipef said, noting “cautious confidence” in prices, “continued disappointing palm oil production into the peak cycle” in the key growing area of South East Asia “could provide further support.
“The general production prediction in Indonesia is rather poor,” a factor which “has triggered significant stock reduction in the origin countries, whereas the destination countries are slowly replenishing their stocks”.
Not that Sipef was getting carried away with the palm oil price outlook, noting the potential for a “serious dent” should Indonesia water down plans for financing their B30 programme – ie the blending of 30% biodiesel into transport diesel.
“The current premium of palm oil over gasoil would suggest the built-up State Fund could be running out of money to subsidise the biodiesel market by the end of this year.”
The strength is feeding through into prices of rapeseed too, which in Paris edged 0.1% higher to E382.25 a tonne for November in opening deals, up 1.7% for this week.
Agritel flagged support for rapeseed (which is an oil-heavy oilseed, as opposed to soybeans which is relatively heavy in meal when processed) “in a context of a new rise in prices on the Malaysian vegoil market”.
Still, Winnipeg canola eased by 0.2% to Can$487.10 a tonne for November, curtailing gains this week to 0.5%, against a backdrop of ramped up US restrictions on Huawei – a reminder of the Canadian arrest of a Huawei executive, for extradition to the US, which has so undermined Canadian canola shipments to China.
It faces the prospect of pressure from Canada’s harvest too, albeit that, as Tobin Gorey at Commonwealth Bank of Australia said, “late-season crops in the south west of Canada’s Prairies are likely suffering from dry conditions”.
‘Tour results a negative’
In Chicago, soybean futures for November were helped by soyoil to at least put the brakes on their descent under pressure from reviving US production hopes.
Midwest weather outlooks have trended a little better since the dry forecasts which, combined with worries over losses to last week’s derecho storm in Iowa, spurred strong gains on Monday in the oilseed, and in corn too.
Furthermore, the Pro Farmer tour of the Midwest is finding above-average pod-counts for soybeans, besides above-average yields for corn crops – although the real interest will come later and on Thursday as scouts get to grips with Iowa.
“Tour results tend to be a negative [for prices], though all eyes are on storm damaged areas,” said Benson Quinn Commodities.
Still, on the more positive side for short-term dynamics, Terry Reilly at Futures International said that “we heard US producer soybean selling was not as robust as previously thought after prices rallied on Monday”.
‘US wheat in contention’
Corn futures for December dropped by 0.8% to $3.39 a bushel, although still staying just ahead of their 100-day moving averages, on similarly recovering US crop ideas.
It was left to wheat, among China’s big three, to fly the flag for bulls, adding 1.1% to $5.23 a bushel for December to climb back above its 100-day moving average.
Kansas City hard red winter wheat added a more modest 0.7% to $4.44 ½ a bushel.
At Commonwealth Bank of Australia, Tobin Gorey saw some competitiveness in US wheat on export markets at current values.
“US pricing keeps hard red winter wheat in contention for destinations through East Asia.”
This, though, when Australian wheat is coming back onstream too, with increasing confidence in a decent harvest this year to break a run of three drought-reduced ones.
Mr Gorey, reporting ASX January wheat futures at the equivalent of $199 per tonne, said that “Australian new crop wheat still looks competitive in the East and South East Asia at those levels.
“And so set to export some of the coming crop.”
Actual trade focus by investors was more on the results of Algeria tender, which has reportedly resulted in a 560,000-tonne purchases by state grains agency OAIC, at prices of $231-232 per tonne on a cost and freight basis.
‘General lack of movement’
Minneapolis spring wheat added a more modest 0.3% to $5.22 ½ a bushel for December, restrained somewhat by pressure from the ongoing US harvest.
Benson Quinn Commodities suggested that “spring wheat still feels cheap below $5.00 and expensive above $5.20”.
It also noted that “although harvest hasn’t reached full throttle, a general lack of spring wheat movement is being noticed.
“Portions of west North Dakota are perhaps better than once expected. South central North Dakota remains a mess.”