11/07/2010 (Business Line), Chennai - Last week, crude palm oil futures (July contracts) fell below the crucial support of 2,330 Malaysian ringgits (MYR) or $730 a tonne on Bursa Malaysia or the Malaysian Derivatives Exchange.

However, it gained during the weekend to close at 2,421 MYR ($760.7).

On Friday, soyabean and oil gained on the Chicago Board of Trade following reports that the yield in US soyabean could be affected by heavy rains in the growing areas.

Other factors that have helped vegetable oils during the weekend were reports of China planning to import more soyabean, a rebound in the European economy and gains in crude oil prices.

“Fundamental factors point to fall in the near futures,” says Mr Ambi Sivaramakrishnan, a Chennai-based analyst. “There are no buyers for palm oil October delivery that is quoted around $745 a tonne. Besides, there are no buyers on the spot market,” he says.

“Moreover, soyabean oil and palm oil are at par. Palm oil's USP is its discount to soyabean oil.

Contracts at discount
“Therefore, a fall is on cards,” he says, adding that all forward contracts are being offered at a discount.

On Friday, soyabean oil ended at 36.99 cents/pound or $815 a tonne, resulting in a $70 premium.

Reports from Malaysia said traders are looking to crude palm oil falling towards 2,000 MYR before they can look at value-buying.

Higher supply of soyabean oil from South American nations such as Brazil, Argentina, Paraguay is also playing on the minds of the market.

NCMSL outlook
According to the National Collateral Management Services Ltd (NCMSL) outlook, the market for soyabean oil continues to trade below the support level of 38 cents a pound ($835-840 a tonne) that is considered to be negative.

Even within the country, soyabean oil at Indore is quoted at Rs 1,955 a quintal, lower than the support level of Rs 1,980. “It could target the Rs 1700-1,750 level,” it said in its outlook.

The reason why most paint a bearish outlook for the vegetable oil sector is that currently, it is the peak arrival season for palm oil.

The market expects palm oil exports from Malaysia to drop at least five per cent this month since buyers would be looking to delay purchases in view of the peak arrival season.

On the other hand, the Indian oilseeds crop is expected to arrive in the markets in October and the US soyabean will arrive from November onwards.

Carryover stocks
“Though the kharif oilseeds will arrive only in October, we have carryover stocks of 125 lakh tonnes. This will help check any sharp rise in the prices,” said Mr Sivaramakrishnan.

NCMSL, too, pointed out to the high carryover stocks. Besides, a higher minimum support price for oilseeds and higher coverage would fundamentally work against any bull movement. Angel Broking, in its outlook, said the edible oils counter could witness profit-booking this week.

Much will depend on how the monsoon behaves, especially in the rain-deficient States of Gujarat and Madhya Pradesh. Gujarat holds the key to a good groundnut crop, while Madhya Pradesh is the hub for soyabean.

Word of caution
NCMSL, however, sounded caution on a couple of aspects that could determine the price movement. Malaysia's crude palm oil output is likely to fall below the previous forecast as unusual wet weather caused by La Nina could affect crops and reduce yields.

The other factor is the US Department of Agriculture pegging soyabean stocks at 571 million bushels, lower than trade estimates of 594 million bushels.

This indicates near-term tightness in the US markets and dependence on South American markets.