Palm oil prices rise above soyoil for first time in nearly 9 years

6 Dec 2019 | Rei Geyssens

Palm oil futures on the Bursa Malaysia rallied Friday on supply concerns and solid demand, overtaking US soyoil futures trading on the Chicago Board of Trade for the first time since 2011.

The benchmark palm oil contract for February delivery jumped 1.5% during the Friday session to close the week at MYR2,858/mt ($685.37/mt) – its highest level since September 15, 2017 and up 33% since the start of October.

“Palm oil is moving up as traders expect production to be lower and want to cover shorts,” a broker said, adding that the trade is now eying MYR3,000/mt as the next target.

The production growth in major producers Indonesia and Malaysia has stalled after dry weather this year limited yields, while both governments have extended their biodiesel mandates from the start of next year, forcing traders to scramble to cover shorts.

Yet at the same time, soyoil futures – which generally trade at a premium to the tropical oil – did not rally to the same extent as uncertainty around the ongoing US-China trade war have kept the contract in check.

“CBOT hasn’t followed as much because of a mix of lower soybeans dragging on the soy complex from the unclear US-China trade progress,” Sathia Varqa, the owner and co-founder at Palm Oil Analytics told Agricensus.

The January contract on CBOT was trading at 30.78 ct/lb ($678.59/mt) by the time of press, up nearly 1% from Friday’s open and up 6.5% since the start of October.

It means that the most liquid palm oil contract is valued at a premium to the most liquid soyoil 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 stem palm oil’s rally.

“When Asia markets close today crude palm oil will be $100/mt more expensive than gas oil and that is a 25-month high. Biodiesel blenders will either slow down or completely stop blending,” Sathia continued.

Argentina at a premium

While palm oil is trading at a premium on the futures markets, in the cash markets soyoil in number one exporter Argentina is still trading at a premium to the tropical oil as cash values have rallied to over a two-year high.

Argentine soyoil for January shipment was valued at a 1.9 ct/lb premium to the CBOT futures, or equivalent to $720.5/mt FOB Up River.

Levels rallied on the back of firm demand from India and China buyers as they seek to buy more soyoil versus palm.

“Palm oil futures are at a premium now but in the FOB market, soyoil is still the king,” a second broker said.