Major biofuel feedstocks rose on Wednesday, as concerns over prolonged fuel supply disruptions due to the Middle East conflict continued to buoy crude oil prices and incentivize biofuel production.
The May soybean oil contract hit new contract highs and was up 1.23% to 74.28 cents per pound in early trade, lifting the corresponding soybean contract by 0.40% to $11.78 per bushel.
Rising biofuel demand could facilitate a drawdown in soybean oil stocks, which have recently reached six-year highs, according to Mark Soderberg of ADM Investor Services.
With rallying soybean oil prices, competitiveness of used cooking oil from China has improved. Soderberg reported that two cargoes, carrying 339,000 barrels of UCO, reached Port Arthur in Texas last month.
"More is expected as the gap between US bean oil and UCO has widened," Soderberg said.
Meanwhile, rising exports from Brazil, with its soybean harvest almost completed, continued to weigh on prices. The Brazilian National Association of Grain Exporters, Anec, projects shipments will reach around 16 million tons in April, compared with 13.5 mmt by one year earlier.
A rapid pace of US soybean planting, exceeding historical averages, also put pressure on the market.
In Asia, Malaysian palm oil futures closed higher after a volatile session, with the Bursa Malaysia Derivatives' May crude palm oil contract gaining 0.8% to 4,505 Malaysian ringgit ($1,139.93) per metric ton. The June contract rose by the same proportion to 4,545 ringgit/mt.
However, slowing exports capped gains, with cargo surveyors reportedly estimating a 15.7% to 16.8% month-over-month drop in Malaysian shipments for the period April 1-25.
Purchases from key importer India reportedly dropped, as buyers preferred to wait for prices to normalize before replenishing stocks.
In China, import margins have recently improved after global palm oil prices declined from contract highs hit in early April, driven by the US-Iran conflict.
"One new September palm oil cargo was purchased yesterday, while spot transactions remain limited to essential buying," Chinese price reporting agency MySteel said.
In top palm oil producers Indonesia, Malaysia, and Thailand, domestic demand is expected to increase with expanding biofuel use.
However, Malaysia's move to raise its palm-based biodiesel blending to 15% from the current 10% may have limited benefits to industrial manufacturers, while it may be good for biofuel producers, Free Malaysia Today reported, citing Federation of Malaysian Manufacturers President Jacob Lee.
Industrial fuel costs will remain heavily influenced by global market pricing, and manufacturers, who are not recipients of fuel subsidies will stay exposed to market volatilities, Lee reportedly said.
In Indonesia, palm oil farmers objected to a proposed surface water tax, amounting to 1,700 Indonesian rupiah ($0.10) per tree per month, as this could cut farmers' income by more than 6%, Palm Oil Farmers Union national council chairman Mansuetus Darto told The Jakarta Post.
The Indonesian Palm Oil Producers Association, Gapki, reportedly said the move would add an "unsustainable" cost layer to the industry that was already burdened by several government charges, including export levies, domestic market obligation, and the upcoming export proceeds rule.
On the supply side, production may rise in the near term following a seasonal low. It may weaken in the medium term as the El Nino weather phenomenon develops, with a more than 90% chance of it happening in Q4.
In the US, May-dated ethanol futures on the NYMEX slipped 1% to about $1.99 per gallon on Tuesday, as the market awaited weekly US production, stocks, and export data due Wednesday.