Soybean oil prices that had fully recovered from a crash in 2015 have started to slide again in recent weeks.
The downturn began in the summer of 2015 when prices fell from US35 cents a pound to a low of nearly 27 cents by September, a 23 percent drop.
Jack Scoville, vice-president of the Price Futures Group, said the main reason for the decline was plummeting crude oil prices, which put pressure on soybean-based biodiesel prices.
A large palm oil crop and plentiful soybean oil supplies from Argentina also weighed down prices.
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However, prices have been climbing since the fall of 2015, gaining back all the ground that was lost when they reached 35 cents per pound in April.
The rally was caused by El Nino, which brought drought to Indonesia and Malaysia, putting a dent in production from the world’s two top palm oil producers.
Reuters reports that Malaysia’s Felda Global Ventures Berhad, the world’s third largest palm plantation operator, expects its palm oil output to fall 17 percent in 2016. Meanwhile, palm oil production in Indonesia sunk to a 14-month low in April.
Drought and forest fires lifted palm oil prices and the entire vegetable oil complex. Palm oil prices have increased so much that they are now on par with soybean oil prices instead of trading at the usual “significant” discount.
The market also discovered that soybean oil demand from the biodiesel sector didn’t drop as much as anticipated.
Brian Voth, president of Prairie Farm Consulting, said canola prices typically follow soybean oil prices, but that wasn’t the case this winter when soybean oil prices were steady but canola prices tumbled in February.
He believes that was because of a strengthening Canadian dollar, which made canola exports less alluring during that period.
However, canola has followed soybean oil prices higher from March to early May as problems from Argentina’s excess rain at soybean harvest came to light.
Voth thinks this may be one of the years when canola divorces itself from big influencers such as soybean oil prices because of market fundamentals.
The canola supply and demand situation could become extremely tight because of small carryout from the 2015-16 crop and fewer acres going in the ground.
“We’ll be on the verge of having no canola left next year, so there will have to be some price rationing,” he said.
Scoville had been expecting soybean oil prices to continue increasing until the commodity took a downturn a few weeks ago. Prices have fallen to 32.5 cents per pound as of May 13.
“Now it looks like they’re going to flip and go lower,” he said.
“I think there’s a chance we could see some softness in prices for a while.”
El Nino is fading, and many weather forecasters believe it will be quickly replaced by La Nina, which tends to bring rain to Indonesia and Malaysia.
That is causing weakness in palm oil prices, which has a trickle-down effect on soybean oil prices.
Another factor pushing prices lower is the potential shift out of corn and spring wheat and into soybeans in the United States because of wet seeding conditions. Soybeans cope better with wet feet than corn, and many farmers haven’t applied their herbicide yet, so a switch is possible.
The U.S. Department of Agriculture is already forecasting 82.2 million acres of the oilseed, which would make it the second biggest soybean crop in history but analysts say another two million acres could switch from corn to soybeans.
