Errol Anderson said today’s vegetable oil prices are literally taking his breath away.
Soybean oil is selling for 55 cents per pound, up from about 30 cents last fall.
“To me, it feels like it’s in the blow-off-top stage,” said the ProMarket Wire analyst.
“But soy oil has gone to 70 cents in past history.”
Canola prices are strongly linked to soy oil prices and he worries the market could take a sharp downward turn any day.
“All of the sudden May canola is going to be down $30 per tonne in a blink,” said Anderson.
“To us old guys who have been trading forever it’s a giant sell.”
But there are others who are giving off a bullish vibe about the soybean oil market.
Bunge chief executive officer Greg Heckman said a new source of demand for the oil emerged in 2020 and is gaining strength.
California’s renewable diesel industry is starting to take off and that is going to provide a sustained new market for soy oil.
“We will really start feeling the demand from the renewable diesel capacity coming on here in 2021 and with the investments that are being made, yes that is a structural shift. That is multiyear,” he said, according to a Seeking Alpha transcript of a conference call announcing the company’s fourth quarter 2020 results.
Heckman said that new source of demand in the industrial sector is going to lead to a lot of reformulating of oils in the food sector.
Anderson was surprised to hear about Bunge’s level of excitement over renewable diesel demand.
“That’s amazing,” he said.
“That’s quite bullish.”
But he still thinks soy oil and canola prices are going to be heading south in the short-term.
He noted that corn and soybean meal prices have come off their highs in China
South America has a large but delayed soybean harvest on the way that will soon be setting the tone for soybean markets, and prices in South America are below those in the U.S. market.
“Those are little cracks that are showing,” said Anderson.
“To me, we’re in overtime.”
Reuters reports that European rapeseed oil prices are record-high, up about 40 percent since July 1, 2020.
“There’s just a massive lack of vegoil supply,” said Uros Vukov, a commodities broker at StoneX in Montreal.
EU rapeseed oil shipments to China are up 40 percent so far this season at 130,000 tonnes and there’s another 200,000 to 300,000 tonnes on the books for coming months, stated Reuters.
It has also been a sensational year run for the world’s leading soybean oil and canola oil exporters.
Argentina’s soybean oil exports are estimated at 5.9 million tons for 2020-21, which would be 800,000 tons above the previous year, according to the U.S. Department of Agriculture.
That is due in a large part to slumping biodiesel exports from that country, which declined to an estimated 400,000 tons in 2020-21 from 1.8 million tons a few years ago.
“Relatively low global energy prices, barriers to imports, and recently, higher vegetable oil prices, all play a role in reducing biodiesel export prospects,” the USDA said in its recent Oilseeds: World Markets and Trade report.
That freed up an estimated 750,000 tonnes of soybean oil for the domestic food market and export markets and exporters took full advantage of that opportunity.
Global demand for soybean oil is strong and exportable supplies in the U.S. and Brazil are down due to strong fuel markets in those two countries, said the USDA.
Meanwhile, Canada is coming off a strong year for canola oil exports. It shipped out 3.37 million tonnes of the commodity in 2020, up from 3.16 million tonnes the previous year.
It is the opposite scenario for palm oil exporters. Malaysia’s crude palm oil production for October 2020 through January 2021 is down three percent from the same period a year ago and 13 percent below the five-year average, according to the USDA.
Poor palm oil output is helping support soybean and canola oil values.