Global edible oil markets exhibited smart resilience bouncing from the key supports and marking a ‘V’ shaped recovery last week. BMD CPO futures took strong support at MYR3,100 and attempted a scale back to the MYR3,200 territory.
Factors such as carry forward weakness from the MPOB and USDA reports, sluggish export pace showing a 12% mom decline and easing production threats directed a cautious tone to the sentiment. On the other hand, high variability in SA weather forecasts a couple of downward revisions in the soy crop size by local agencies turned the fortunes in favor of price recovery during the later half of the week.
CME soy complex sojourned into a subdued trade zone weighed by higher year end stocks and poor export numbers. Prices were contained in a narrow trade band until a late weekend recovery fuelled by the ability of the crude oil prices to stay above US$100 and a relatively weaker USD index.
Marked by a stark distinction, Indian edible oil markets plummeted into negative territory by a stronger USD/INR which sharply appreciated close to 2 month highs.
In Brazil, beneficial showers spread over much of the region, bringing some relief from dryness to soybeans and corn while maintaining overall favorable crop prospects in key central producing regions. Most of the rain in the south (Rio Grande do Sul to Mato Grosso and Sao Paulo) came at the fag end of the week with the passage of a strong cold front.
Nearly all areas recorded 25 to 100mm, though drier conditions prevailed in Rio Grande do Sul’s southern agricultural areas. In Argentina, heavy rain brought some much-needed relief from heat and dryness to previously stressed summer grains and oilseeds.
Nevertheless, rains came after several days of unusually hot weather (in excess of 40°C) that compounded damage on reproductive to filling corn and other crops vulnerable to severe heat stress.
Beginning on 14th Jan, a strong cold front pushed through the region, generating moderate to heavy showers (10-50mm or more) over a broad area stretching from eastern La Pampa and Buenos Aires northward through Paraguay. According to Argentina’s Agriculture Secretariat, corn and soybeans were
96% and 97% planted respectively as on date.
At US, soybean export perform continues to disappoint with weekly exports hitting a 13 week low last week. As per the weekly export sales report, soybean exports tumbled to 0.79mn tons as against 1.02mn tons in the prior week. This brings the accumulated exports to 583m bushels at 19 weeks into the marketing year (beginning Sep’11).
On a broader perspective, accumulated exports as a percentage to total estimated exports stand at 46% which is lower compared to 52% during the corresponding period last year. Despite earlier anticipations of an expected shift in demand to US in the wake of reduced production possibility in South America, actual figures narrate a different story.
The softening of the La Nina weather indicator also conforms to the fact that crop damage could have been over stated, while reserving the final call on yields for the next 2-3 weeks. The Southern Oscillation Index recorded 12.6 reading after making a high of 24 a couple of weeks indicating a temporary retreat of the La Nina and hence return of favorable weather conditions to SE Asia as well as LaTam.
In this regard, the less than expected seasonal decline in Malaysian palm oil production vouches for easing weather conditions. It may be noted that MPOB reported a mere 8.5% drop in CPO production last month as against the market expectations of a double digit decline.
But, palm oil exports have been traversing through rough terrain posting a 14% mom decline so far in January. At the face of it, fundamental cues do not warrant a steep rally at this point of time. The only positive point for the market to cherish is the ability of the prices to hold the supports of MYR3,100 in BMD and 50cents in CME.
External factors such as a range bound USD index, firmer crude oil prices and reviving economic and consumer confidence could inject a short term upward momentum into the prices.
Domestic prices are left with fewer determinants with the chief being the currency fluctuation viz, the appreciation of the rupee. The rupee appreciated by over 4% since the beginning of this month pulling edible oil prices down. A slight easing of the rupee cannot be ruled out as they have taken support around 50 mark which could guide the local prices higher for a while.
Last week’s recovery from the lows pf MYR3,100 and attempt to test MYR3,190 which is a chart gap resistance indicates near term gains. The ability of the prices to settle above MYR3,190 could take the prices towards the trendline resistance of MYR3,230 followed by MYR3,250 which is a major resistance. Alternatively, prices could enter into a congestion zone of MYR3,140-3,210 before signaling a recovery.
MCX CPO prices broke the medium term trendline support of Rs529 and extended the fall towards the 61.8% retracement level of Rs523 with the week’s low at Rs520.4. The ability of the prices to settle above Rs526-528 could lead to a break of the short term channel formed during the fall from Rs561. Strong support (breakout level) exists at Rs517 below which weak trend continue. Resistance is identified at Rs530-535 for the prices to stage a turnaround.
Last week’s bounce from the low of 50.16cents which is close to the key support of 50cents invites short term upward momentum. Ability to close above 51.7cents could take the prices to 52cents and a spike towards the major resistance of 52.52cents cannot be ruled out. Considering that 52.5-53.4cents has been a strong resistance zone for the prices since the past 3 months, it acts as a crucial level for an upside turnaround to occur.
NCDEX soy oil prices briefly broke the medium term trendline support of Rs690 but staged an active recovery last week. The fall from the high of Rs754 has given rise to a channel formation with support at Rs685 and resistance at Rs710-713. The fact that prices bounced from the low of 684.6 (close to 61.8% level of 680) invites near term positive tone. Prices could stay in a congestion zone of Rs680-710 in the short run.
Soybean prices breached the short term support level of Rs2,480 making a low of Rs2,454 last week. This keeps the overall sentiment mixed with weak bias, however, prices could attempt for near term gains finding stiff resistance around Rs2560. The ability to hold above Rs2,500 would keep the end Dec’11 trendline breakout intact taking prices towards Rs2,620 and above. Medium term upside remains valid as long as Rs2,350 is not broken.
Mustard seed futures exhibited high volatile price action falling from the resistance of Rs3,525 last week. Prices made a low of Rs 3,270 (before bouncing back) while the 38.2% level exists at Rs3,230, which leaves ample scope for a likely retest followed by a recovery.
A close above Rs3,390 could reinvigorate last week’s bounce back and turn the prices positive towards Rs3,455- 3,470. Medium term uptrend stays intact as long as Rs3,100 is not broken.
Courtesy: IIFL
