Prices steady in veg oil at last.
European and UK soybean oil prices have continued to sty steady over the last few weeks following further heavy fund-speculative selling in the Chicago soy markets. Soyoil futures have driven the market to sharply higher levels in recent months following new biodiesel mandates which would sharply increase the usage of soyoil which could have limited food demand and forced consumers to increase the amount of imported vegoils. However, futures have come under significant selling pressure after rumours that the US administration is considering giving some support to US oil refiners, either financial support or by exempting them from some of the obligations under the renewable fuel standard. This has led to ideas that the previous announced mandate could have been over ambitious, but we are seeing an increase in biodiesel mandates around the world which could limit the availability for food demand which would increase the discussion over food versus fuel debate at a time of commodity volatility.
As in other commodities, the recent sharp correction has left the market looking overbought to now looking oversold as the US crop is still not “made” as August is the critical month for crop development and will ultimately determine yields and production. We did see a rally in futures at the end of last week as weather conditions are still looking dry for parts of the key corn and soybean growing areas which is starting to reflect in weekly crop ratings, however there are more beneficial weather conditions forecast for the next week or so. The USDA’s weekly crop condition report, released last night, showed that crop ratings for corn and soybeans fell again over the past week, due to recent hot and dry weather. The report said that 65% of corn crop is in good to excellent condition, down 3% on the week and 7% on the year, with the crop fully planted and emerged. 60% of soybeans are now called good to excellent, down 2% than last week and 10% below last year, with 97% of the crop planted, compared to the five-year average of 94%, 91% emerged, compared to 85% on average, and 5% blooming, in line with the usual pace. Conditions can improve if we see better weather conditions in the next few weeks.
Market attention will be on next week’s revised US acreage report, which could show some changes to planted acreage based on actual planting progress and not the USDA plantings intentions report which surprised the market in March by showing lower than expected corn and soybean plantings but crop planting this year was well ahead of normal and we are looking to see if farmers took advantage of high prices to increase planting. Unless there is a significant increase in planted acreage for soybeans, well above the 90 million acres, level as well as “normal” weather in August, the US supply and demand could remain relatively tight but South American planting is expected to recover sharply later this year.