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This week, the latest monthly supply and demand reports from MPOB Malaysia and the US Department of Agriculture are neutral and bearish, with no significant negative impact on the soybean oil market. Recently, influenced by the geopolitical situation, the strong international crude oil has driven up soybean oil, which is used as a raw material for biodiesel. Domestic soybean oil has followed the adjustment of the international market, and the current international macro environment is loose, which is beneficial to the commodity market. It is expected that soybean oil may maintain a strong trend in October, but the increase in the spot market is limited due to loose supply and sluggish demand.
The monthly supply and demand report of American farmers is slightly short and limited
According to the latest monthly supply and demand report from the US Department of Agriculture, it is expected that the US soybean production for 2024/25 will be 4.582 billion catties (121109 thousand tons), with an average yield of 53.1 catties per acre. In contrast, the US Department of Agriculture's expected production and yield for September are 4.586 billion catties and 53.2 catties per acre, respectively; The estimated final soybean inventory in the United States remains unchanged at 550 million catties; Maintaining the estimated soybean production in South America unchanged, global soybean ending inventories were slightly increased by 70000 tons to 134.65 million tons.
This report has slightly adjusted the yield and yield of American soybeans, which is basically in line with market expectations (yield 4.579 billion bushels, yield 53.1 bushels/acre); Although this report has lowered the estimated soybean production, it is expected that soybean production will still reach a historical high. From Figure 1, it can be seen that the soybean production in the United States in 2024/25 is at a high level in the past 20 years, far higher than the average production in the past 20 years. Overall, this monthly supply and demand report is neutral and bearish, with no significant driving force on the soybean market. The bearish impact of soybean oil from the cost side is limited.
Low inventory drives up palm oil prices and soybean oil prices
The palm oil supply and demand data released by the Malaysian Palm Oil Board (MPOB) for September showed that Malaysia's palm oil production in September was 1.8219 million tons, a month on month decrease of 3.80%, lower than market expectations of 1.858-1.86 million tons; The export volume was 1.5428 million tons, an increase of 0.93% month on month, slightly higher than the market expectation of 1.49-1.5 million tons; Domestic consumption was 154000 tons, a month on month decrease of 38.40%; At the end of September, the inventory was 2.0138 million tons, a month on month increase of 6.93%, higher than the market expectation of 1.882-195 million tons. Compared with the previous estimated data released by various institutions, the production is lower than expected, the export volume is higher than expected, and the inventory exceeds market expectations. The data in this report is neutral and bearish. However, from the inventory data, the inventory in September is still at a relatively low level compared to the same period in the past three years, so the bearish impact on the palm oil market is limited.
There is a mutual substitution relationship between soybean oil and palm oil. In most cases, due to cost factors, soybean oil prices are higher than palm oil prices, and the price difference between soybean and palm oil fluctuates around 800-1000 yuan/ton. Unless there are extreme situations, the price difference between soybean and palm oil may become negative. Since the beginning of this year, the price difference between soybeans and palm oil has shown an unusual trend, mainly due to the strong fundamentals of palm oil itself. The price has continued to rise, causing the price difference between soybeans and palm oil to turn from positive to negative in March this year, and then continue to consolidate in a low range. Although the monthly supply and demand report of MPOB in Malaysia did not provide any positive guidance, the sustained low palm oil inventory, strong crude oil, and loose macro environment in Malaysia may provide support for palm oil prices, leading to a sustained low price difference between soybean and palm oil, which in turn will boost market demand for soybean oil and boost the soybean oil market.
In addition, shipping survey agencies estimate that Malaysia's palm oil exports increased by 13.6% to 18.9% month on month in early October. Palm oil exports have shown strong performance so far this month, supporting a significant increase in Malaysian palm oil futures. From Figure 3, it can be seen that the trends of domestic primary soybean oil and Malaysian palm oil futures are basically consistent. In recent years, palm oil has basically replaced soybean oil as the leading role, which has a significant impact on the trend of the soybean oil market. As of the week of October 11th, the average contract price of Malaysian palm oil was 4298 ringgit/ton, an increase of 6.31% compared to the previous week's average price; The weekly average price of domestic first grade soybean oil was 8340 yuan/ton, an increase of 2.21% compared to the previous week.
Domestic soybean oil trading is sluggish
Due to the overall high operation of soybean oil market prices and limited recovery of terminal demand, the overall performance of weekly trading volume in the second half of this year was poor, and there was even a situation of weak peak season. As of the week of October 10th, the weekly trading volume of domestic soybean oil was 17900 tons, slightly lower than the previous week's 18000 tons, and even the trading volume of key enterprises in some markets was zero during the week. The poor trading volume in the soybean oil market has to some extent limited the increase in market prices.
It is expected that soybean oil will continue to rise in October
According to CME's "Federal Reserve Watch" in the international market, the probability of the Federal Reserve lowering interest rates by 25 basis points by November is 95.6%, and the probability of maintaining current interest rates unchanged is 4.4%; The probability of a cumulative interest rate cut of 50 basis points by December is 84.1%, and the probability of a cumulative interest rate cut of 75 basis points is 0%; The probability of a cumulative interest rate cut of 100 basis points is 0%. It can be seen that the international financial environment is still favorable, and commodity prices are rising, so soybean oil is naturally supported by the overall environment and tends to consolidate. In addition, although there is still pressure to increase palm oil production in October, palm oil inventories continue to increase. At the end of October, production area inventories may reach the highest point of the year, but they are still at a low level this year, providing support for the oil market and boosting the soybean oil market. Although the US agricultural supply and demand report has a downward driving force on US soybean futures prices, as the market gradually digests, US soybean futures may have some support around 1000 cents/bushel, so the bearish impact of soybean oil from the cost side is limited.
In the domestic market, with the end of the National Day holiday, the operating load of domestic oil plants has significantly increased. This week, some enterprises have resumed normal operation after completing maintenance or digesting existing inventory pressure, and the supply of soybean oil has gradually stabilized. Due to the low inventory of downstream users in the early stage, there is still a demand for replenishment in the market after the holiday, but the expected increase in demand is limited, which to some extent restricts the market trend.
Overall, the macro environment is favorable for the soybean oil market to rise, and from the trend of the main contracts in the commodity futures market, there is a strong bullish sentiment. It is expected that the soybean oil market may maintain a strong consolidation this month, but limited domestic demand may limit the room for price increases.