Palm oil futures on Bursa Malaysia rose on Friday on solid supply and demand concerns, outperforming US soybean oil futures trading at the Chicago Chamber of Commerce for the first time since 2011.
The benchmark palm oil contract for February delivery rose 1.5% during Friday's session, closing the week at MYR2,858/mt (US $685.37/mt) – its highest level since May 15 September 2017 and 33% since the beginning of October.
“Palm oil is rising as traders expect production to be lower and want to cover shorts,” said a broker, adding that the trade is now targeting MYR3,000/mt as the next target.
Production growth in top producers Indonesia and Malaysia stalled after this year's dry weather limited yields, while both governments extended their biodiesel mandates from early next year, forcing traders to scramble to cover shorts. .
However, at the same time, soybean oil futures – which generally trade at a premium to tropical oil – have not risen to the same extent as uncertainty surrounding the US-China trade war has kept the contract in check.
“CBOT has not followed much because of an inferior soybean blend dragging down the soybean complex due to clear trade progress between the US and China,” Sathia Varqa, owner and co-founder of Palm Oil Analytics told Agricensus.
The January contract on the CBOT was trading at 30.78 ct/lb (US $ 678.59/mt) at the time of publication, an increase of almost 1% from Friday's open and an increase of 6.5% since the beginning of October.
This means that the most liquid palm oil contract is valued at a premium to the most liquid soybean oil contract for the first time since February 21, 2011.
Higher palm oil prices, however, are eroding discretionary demand for palm as a biodiesel feedstock as buyers turn to soft oil alternatives, which in turn could hinder a recovery in the Palm oil.
“When Asian markets close today, crude palm oil will be US$$ 100/mt more expensive than gas, and that is a 25-month high. Biodiesel blenders slow down or stop mixing altogether,” Sathia continued.
Argentina with a prize
While palm oil is trading at a premium in the futures markets, in the spot market soybean oil as the number one exporter, Argentina is still trading at a premium to tropical oil as cash values have risen to more two years.
Argentine soybean oil for January shipment was valued at a 1.9 ct/lb premium to CBOT futures, or equivalent to US $ 720.5/mt FOB Up River.
Levels have risen due to firm demand from buyers in India and China trying to buy more soybean oil compared to palm.
“Palm oil futures are up now, but in the FOB market, soybean oil is still king,” said a second broker.
Source: AgriCensus
