A rise in crude oil prices lifted major biofuel feedstock futures on Wednesday, despite signs of weakening supply and demand fundamentals.
The May soybean oil contract on the Chicago Board of Trade rose 0.86% to 67.01 cents per pound, and the May CBOT soybean contract climbed 0.78% to $11.67 per bushel in early trade.
However, biofuels demand may ease if the energy market softens, with the US-Iran peace talks in sight.
On top of this, ample supply availability of soybeans will continue to weigh on prices, particularly as Brazil harvests a record crop and as the US expands soybean plantings.
Brazil's National Supply Co., Conab, raised its soybean production outlook to 179.2 million tons from 177.9 mmt, and said harvest progress reached 85.7% due to improved field conditions from reduced rainfall in March.
In the US, soybean planting progress reached 6% as of April 12, above the 2% pace recorded a year ago and as an average in the last five years, the US Department of Agriculture said.
US soybean plantings will likely expand to 84.7 million acres, as rising fertilizer costs prompt farmers to shift acreage from corn to soybeans, according to the agency.
In Asia, Malaysian palm oil futures closed higher on Wednesday, tracking stronger crude oil and soybean oil prices, despite some moderation earlier in the session.
The Bursa Malaysia Derivatives' May and June crude palm oil contracts inched up by more than 0.1% to 4,426 Malaysian ringgit ($1,120.51) per metric ton and 4,472 ringgit/mt, respectively.
As prices increased due to the Middle East conflict, the Malaysian Palm Oil Board raised the reference price for palm oil to $4,521.89 ringgit/mt in May from 3,935.19 ringgit/mt in April, effectively increasing export duty to 10% from 9.5%.
The Malaysian government on Tuesday reportedly agreed to increase its biodiesel mandate to 15% from the current 10%, with phased implementation to start with a 12% blend using existing biodiesel plants, according to multiple media outlets.
The country is currently mandating a 10% biodiesel blend for the transportation sector, and has introduced a 20% blend in few provinces.
Malaysia's move followed Indonesia's plan to raise its biodiesel mandate to 50% from the current 40% beginning July 1, and Thailand's decision to increase blending ratio to 7% from the current 5%.
Thailand has also tightened export controls for palm oil to boost domestic supply.
However, price reporting agency MySteel said that "the economic foundation for palm-oil producing countries to implement biofuel policies is being undermined" following a recent drop in crude oil prices.
"Thailand's policy of restricting palm oil exports has already shown adverse effects, reflecting the possibility that expectations of tightening future palm oil supply may diminish as crude oil prices weaken," MySteel said.
In the US, the May-dated ethanol futures on the NYMEX slipped 0.52% to about $1.93 per gallon on Tuesday, to end a two-session rally.