Veg oils: Markets weighed down by disappointing US blending mandates

Weekly vegetable oils markets commentary

In the week ending on December 2, Malaysian crude palm oil (CPO) futures slid to an eight-day low at the close of the week, largely driven by weakness in related vegetable oils and a strong ringgit.

The benchmark contract for February delivery on the Bursa Malaysia Derivatives Exchange dropped 2.94% to settle at MYR 3,958 per tonne ($902 per tonne), weighed down by losses seen in soy oil futures on the CME as the impact of planned changes in the US biofuel blending sent soy oil prices plummeting overnight.

A stronger ringgit – CPO’s currency of trade – also made it more expensive for buyers holding other currencies, with the ringgit strengthening against the US dollar for a third day running.

On a weekly basis, the contract has fallen by 4.4% as earlier buoyancy from lower production and healthy export demand failed to outweigh pressures from the external markets.

Palm oil futures

On China’s Dalian Commodity Exchange, the most active palm oil contract slid 3.18% to close at CNY 8,272 per tonne ($1,178 per tonne), while the most active soy oil contract dropped 2.6% to CNY 9,242 per tonne ($1,316 per tonne), weighed down by weakness in soy oil futures on CME and tracking dips in Bursa.

The outlook for palm oil demand from China continues to be mixed, with some holding optimism for a gradual relaxation of measures, while the lack of clarity on the changes is keeping financial markets wary.

Palm oil stock levels in China were seen to be elevated as consumption has been impeded by Beijing’s strict Covid restrictions, with buyers still cautious in purchasing for forward months.

In the cash market, offers were higher during early trading hours, with CPO offers to India seen at $1,020-1,030 per tonne CNF for December cargoes and $1035-1055 per tonne CNF for January, while buying ideas were around $1,000 per tonne CNF for December.

Around 30,000 tonnes of CPO was subsequently heard traded at $1,000-1,010 per tonne CNF.

Olein offers to China were also seen in the range of $1,030-1,042 per tonne CNF for January-June loading shipments, with trades heard concluded at $995-1,002 per tonne CNF for volumes to south and mid-China loading between December-January.

US soy oil and meal markets

In the Americas, the Chicago soy oil futures market accounted for a second day of significant losses as yesterday’s release of lower-than-expected biofuel blending requirements by the US Environmental Protection Agency (EPA) continued to weigh heavily on sentiment.

The most liquid January contract traded as low as 64.50 cents per pound earlier in the session before clawing its way back to around 64.87 cents per pound by the time of publication, down 3.7% day-on-day.

In contrast, US soy meal futures in Chicago was mostly stable, with the January contract trading at $421.7 per short tonne at the time of publication, flat day-on-day from the prior close.

As a result of the significant price movement on soy oil, the oil share in Chicago — the proportion of the oil value as part of the bean crush — declined to around 43.4%, down from an average of 47.6% for the month of November.

Crude oil prices accounted for mixed sentiment on Friday as investors weighed the likelihood that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will consider significant production cuts when the group convenes on Sunday.

WTI crude oil strengthened to a high at $82.2 dollar per barrell earlier in the day before falling back to around $80.9/bbl by the time of publication, down 0.4% day-on-day.

Losses on oil were capped by a weakening US dollar index which traded 0.1% lower day-on-day following the release of new data showing that US employers added 263,000 jobs in November.

Argentine soy oil prices

In Argentina, the soy oil basis was stronger on the day, with volumes for January shipment assessed at an 11.00 cents per pound discount to January futures, up 200 basis points on the previous assessment.

A strengthening basis premium and weakening soy oil futures in Chicago put cash prices at $1,192 per tonne FOB Up River for January loading, down $7 per tonne day-on-day.

European veg oil markets

In Europe, soy oil prices plummeted Friday after the soybean complex on the CME collapsed Thursday following an EPA report that lifted biomass-based diesel blending mandates in the US, while ample supply was seen in the market.

Soy oil FCA was quoted at €1,375 per tonne for February-April, down from €1,470 per tonne Thursday, while for May-July, it was quoted at €1,340 per tonne, down €100 per tonne on the day.

“It’s bigger stocks and dismay over the EPA report,” one European broker commented, noting that the 6.83 cents per pound drop in December soybean oil futures Thursday was the equivalent of $150 per tonne.

Rapeseed oil indications were also seen lower, with January bid at €1,160 per tonne against offers at €1,220 per tonne and February-April bid €1,200 per tonne against €1,230 per tonne on an ex-Mill Rotterdam basis.

The sun oil market picked up in Ukraine, with more sellers, including $1,230 per tonne in Constanta/Varna, $1,235 per tonne CIF Marmara, $1,255-1,260 per tonne CIF Mersin for December, January and February.

The most promising buy idea was in Tekirgad at $1,220 per tonne for 3,000 tonnes in December.

According to official data as of December 1, sunflower harvesting in Ukraine has been completed on 97% of the planned area or 4.57 million hectares, with 9.9 million tonnes of sunflower harvested.

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