Vegetable, soya oil prices

European and UK soybean oil prices have moved

sharply higher in the past week with support coming

from strength in the futures market, which reached new

7-year highs last week, due to concerns over critically

tight US soybean stocks. Stocks are seen at just 4.76

million tonnes, down from 14.25 million last year and

24.74 million in 2018-19. Some additional support

also came from news of a strike at Argentine crushing

plants, which could be supportive for additional

demand from the US and this helped the speculators/

funds add to their already huge, long position.

UK prices have been further supported by a weaker

Sterling and reports that refiners are still well sold

through to the end of January. As in rapeseed oil, there

are some concerns over the impact of further restrictive

lockdowns across Europe which is expected to hit both

food and biodiesel demand. There are, however, easing

concerns over South American weather conditions as

more normal weather is expected in the coming weeks

but parts of Argentina are still reported to be too dry.

The main issue is that we are about to enter a critical

time period for crop development and more normal

weather conditions are needed to prevent any further

crop losses.

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Like many major commodities this year, there have been some extreme weather conditions that have resulted in sever

crop losses and this has also been the case for soybeans. The situation is difficult if you have one major crop loss but

when this extends to the main four major oil crops, this makes the outlook very difficult as some form of demand

rationing is needed, or it will leave the world oilseed supply demand looking tight for yet another year. Demand has

been exceptional this year, led once again by China as it ramps up its domestic crush capacity to meet meal demand for

its livestock. India has also been ramping up purchases to replenish stocks as the coronavirus had a major impact earlier

in the year, but China particularly has recovered dramatically as it has apparently resolved its covid-19 cases, for now.

The markets are expected to become relatively quiet in the coming days as we head into the holiday period and I expect

the markets to consolidate over the next week. We could see some correction, fund position squaring after the recent

sharp gains but direction in the New Year will depend on South American weather in the coming weeks and demand.