Soybean oil futures dropped again last week, falling below support levels. Some of the factors affecting the market are as follows:
- Planting progress for corn was reported at 68% which is well above the 5 year average. 15% of the soybean crop has been planted, which is also ahead of the 5 year average.
- Soy meal consumption continues to be challenged by alternative protein feeds from the bio-fuel industry.
- The May 6 “meltdown” (the Dow Jones was down almost 1,000 points before a modest recovery), puts the Dow at almost unchanged in 2010. Behind the scenes were concerns over Europe’s debt crisis, particularly Greece, and continuing worries over the stability of the Spanish economy. Possible malfunctions with trading technology played a role as well.
- Renewable Energy World reports: The past few months have seen production drop off and new investments grind to a halt in the biodiesel industry. In March, the U.S. Senate passed a bill containing the reinstatement of the biodiesel blender’s tax credit (an extension of the US $1 per gallon biodiesel production tax credit) which had expired at the end of 2009. The bill calls for the tax credit to be retroactive to January1st and runs out on December 31st 2010.
- We could see a passage of this bill before Memorial Day, at which time we will likely see much support in the bean oil complex as it rallies to a closer relationship with Heating Oil.
- Oil share was steady last week. With the Stock Market selloff on 6th May, the market is viewed as oversold and we could see a corrective bounce.
- China last month halted shipments of soybean oil from Argentina, the world’s biggest supplier, as part of a widening trade dispute. (http://www.businessweek.com/news/2010-05-06/china-said-to-consider-easing-rules-on-u-s-soy-oil-update2-.html). As such, China, the biggest user of cooking oils, may relax a barrier on imports of soybean oil from the U.S.
- We should also be mindful of the potential for increased crude oil exports from the US and Brazil.
- More talk of China purchasing US corn coupled with better than expected export inspections have supported the corn market.
- The Dow Jones has rallied since May 6th and though some continued weakening in the soybean oil market should be expected in the near term, we should anticipate some upward movement in the coming months as heating oil and crude oil are expected to rally.
- Potential exports to China should help push the market upwards.
- The price of oil will most likely see a corrective (upward) “bounce” in the coming weeks.
Other references: Refined Oils Weekly Wire, Weekly Publication