US soyoil futures at 13.5-year low as Brent crude nears $30/bbl

16 Mar 2020 | Rei Geyssens, Vika Blazhko

US soyoil futures fell to their lowest level since October 2006 on Monday, pressured by Brent crude oil futures, which plummeted 13% despite the Federal Reserve cutting interest rates to zero on Sunday amid fears about the rapidly spreading Covid-19 virus.

The May CBOT soyoil was down 4.4% to 25.41 ct/lb by the time of press, meaning the front soyoil contract is down over 28% since the start of the year, with Brent crude oil prices at their lowest level since February 2016.

“Soyoil is down because of huge soybean crop in Argentina and Brazil, as well as record-high soyoil inventories in the US on the back of significantly higher soybean crushing and slowing soyoil demand from domestic biodiesel industry,” said Anilkumar Bagani, research head at Mumbai-based vegoil broker Sunvin Group.

Vegetable oil prices have sunk over the past fortnight, following a 40% slump in crude oil prices as a price war between Russia and Saudi Arabia has flooded the market with cheap crude oil.

At the same time, demand has been diminished sharply as the global economy starts to shut down because of the Covid-19 outbreak, with many European countries announcing transport and travel restrictions over the weekend.


The US tried to prevent severe losses on exchanges by cutting interest rates by one percentage point to a range of 0-0.25%, but the move failed to stop another plunge in stock markets, which at one stage fell 8% and triggered a stop-loss 'circuit breaker' brief halt to trading.

Meanwhile, prices for crude oil fell further, dropping 10% at one stage on Monday.

“The [petroleum] price response is understandable given that lower interest rates and new bond purchasing programmes will do nothing to combat the current weakness of oil demand,” Commerzbank wrote in its daily report.

“The more countries “freeze” public life, close their borders and cancel flights, the greater the impact will be on oil demand, especially as this also involves economic activity being generally scaled down,” the German lender added.

Malaysian palm oil futures, meanwhile, followed the same trajectory as US soyoil futures over the past 2.5 months, losing 27% in ringgit terms and falling from a three-year high.

Yet in US dollar terms, that fall has been magnified to 33% since the start of the year as the Malaysian ringgit has lost over 5% against the firmer US dollar over that timescale, meaning the discount for palm oil to soyoil has widened from $15/mt to $50/mt.


However, the palm oil market remains supported by a tight supply picture, as stocks in the world’s second largest producer have slumped to an 18-month low as dry weather struck at the end of last year.

“Palm oil is actually quite tight at origin, we continue to see falling stocks and think this is keeping it expensive,” a palm oil broker said, with prices near a six-month low.

Sunoil loses its sheen

Sunoil prices have dropped 21% since the beginning of the year to their lowest since January 2019 at $645/mt FOB Chornomorsk, although it still remains expensive compared to rival vegoils.

Ukrainian sunoil has lost its attractiveness, especially in India - the world’s largest vegoil buyer - with premiums at near $100/mt over soyoil and more than $120/mt over RBD palm olein.

“Sunoil is being held back by sellers to avoid defaults like last year,” an Indian trader told Agricensus adding that “sunoil prices will have to move down with soyoil being close to the bottom for the time being.”

Indeed, with lacklustre demand from the main buyers and general bearish mood prevalent across the board, the sunoil market is likely to remain under pressure, market participants said.

“Due to the coronavirus epidemic in the European region and the Middle East, the window of opportunity for Black sea sunoil exports is shrinking as key buyers, such as Italy, Iran, the Netherlands and Spain are locked down, so the sunoil spread to competing vegoils needs to narrow down to attract any fresh demand from India,” Bagani said.