Malaysian Palm Oil: The August contract of Malaysian palm oil fell 11% last week to 3,663 ringgits, the lowest close in over a month. A weekly chart of most-active futures contracts shows a bearish change in the stochastic indicator and also shows palm oil's first close below its 100-day average in a year. Fundamentally, USDA expects palm oil production to rebound in Malaysia as the threat of COVID-19 diminishes. USDA also expects world production of palm oil to increase by over 4% in 2021-22. Palm oil is the world's leading source of vegetable oil by volume and has a strong influence over other oil prices, including soybean oil, the second largest source. Friday's bearish change of trend in palm oil prices at a time production is being restored is bearish for the vegetable oil sector and is likely to play a part in cooling the red-hot demand for soybean oil.
Soybean Oil: July soybean oil traded down its 3.50-cent daily limit several times Friday and finished down 3.48 cents at 66.98 cents. Weekly prices posted their second technical reversal in four weeks, finishing down 4.36 cents on the week after briefly hitting a new all-time high of 73.74 cents Monday. As strong as demand has been for the vegetable oil sector the past year, seeing spot prices of palm oil turn lower and then hearing rumors the White House may be considering granting refiners relief from the biofuels mandates hit bean oil prices hard Friday, putting soybean oil bulls in a tough predicament. Noncommercial net longs in soybean oil in Friday's CFTC report totaled 83,891 as of June 8, down substantially from January's peak of 141,167, but still a large amount of potentially nervous sellers in the market. So far, the trend in July soybean oil remains up, but there are reasons to watch out for a bearish change in momentum.
Canola: November canola closed down C$17.00 Friday at C$744.30 and was down 3% on the week. Similar to soybean oil, November canola hit a new all-time high of C$784.40 on Monday, June 7, but posted a technical reversal for the week, thanks to Friday's lower close. Technical reversals, by themselves, are not enough reason to turn bearish on a market; but given the context of the palm oil and soybean oil markets explained above and the high altitude of today's vegetable oil prices, these bearish clues deserve respect. As with July soybean oil, the trend in new-crop canola remains up, but conditions are ripe for at least a correction. One thing in canola's favor is there were only 10,347 noncommercial net longs as of June 8, not large enough to pose much of an additional selling threat. For now, the trend in November canola remains up with the 100-day average at C$653.00.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities and futures contracts involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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