After surging ahead for months, world vegetable oil markets seem to have blown a gasket.
“This has taken a lot of the steam out of the market,” said Benson Quinn-GMS commodity broker David Reimann after the close of trading April 16.
“It’s going to make it tougher to get the market back up to the extremes we were at.”
The declines began after an April 8 United States Department of Agriculure supply and demand report. The report was generally positive for soybean prices, but commodity funds, whose speculation had helped fuel the rally, took the opportunity to realize their profits.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
Canola prices on the Winnipeg Commodity Exchange also fell, but lagged behind the large drops in Chicago soybeans.
Soybean futures fell by five percent between April 7 and 16, although at the end of the week the price had stabilized and partially recovered.
Soybean meal futures were the worst hit, while soy oil was down about two percent.
The soybean May futures price slumped by 50 cents per bushel on April 15 – the maximum it is allowed to drop in one day and the first time it has fallen by the maximum since the Chicago exchange expanded the limits.
That took prices below the $10 US per bu. level that excited markets a few weeks before.
Canola futures prices fell about two percent, echoing the soy oil fall.
Reimann said the price slump appears to have been driven by commodity fund selling. As soon as some started selling, other funds were triggered to sell into the falling market.
Nolita Clyde of Ag Commodity Research said this slump does not show a lack of real-world demand for canola.
“This decline is solely technical,” said Clyde. “Fundamentally, nothing in the market has changed.”
Reimann said the vegetable oil price slide was moderated by end users of canola buying as commodity funds sold. But the scale of the fund selling overwhelmed the commercial buying.
“It’s helpful that the end users did step up, but it definitely did tip over the charts on a lot of the commodities,” said Reimann.
Weather rallies are still likely to occur before mid-summer, he said, so good prices for vegetable oils aren’t gone, but rallies will fade more easily than in recent months.
“It’s likely we’ll see more willing sellers on any sort of rallies now,” said Reimann.
