Major biofuel feedstocks continued to track declines in crude oil prices on Thursday, with weakening biofuel economics weighing on sentiment despite demand hopes.
In early trade, the July soybean oil contract on the Chicago Board of Trade slipped 0.96% to 74.30 cents per pound, and the July soybean contract fell 0.42% to $11.90 per bushel.
Recent price movements of vegetable oils amid the US-Iran conflict have eroded the discounts of palm oil to soybean oil, with buyers now preferring to buy the cheaper soybean oil until markets normalize.
Key buyer India has reportedly cut its purchases of palm oil in favor of soybean oil and sunflower oil. Dealer estimates, as cited by Reuters, showed the country's palm oil imports dropped 27% month over month to a one-year low of 505,000 metric tons in April, as soybean oil purchases increased 24% to 355,000 mt, and sunflower oil shipments more than doubled to a 22-month high of 435,000 mt.
An S&P Global analysis showed that price spreads between Asian crude palm oil and South American soybean oil have shifted from discounts of $50 to $100 per metric ton earlier in the year to premiums of $80/mt to $100/mt in March and April.
"However, despite soybean oil becoming relatively more competitive on a flat-price basis in recent weeks, large-scale arbitrage expansion has remained limited because elevated freight costs continue constraining delivered economics into Asia," S&P Global said.
For US soybeans, a demand upside stems from a possible increase in Chinese soybean purchases, with market participants hoping for positive trade results from the Trump-Xi summit in mid-May.
On the supply front, a record pace US planting and a record Brazilian crop continued to weigh on sentiment, but higher fertilizer costs and weather-related supply risks could serve as headwinds.
In Asia, Malaysian palm oil futures slipped further on Thursday, as prices for crude oil and rival soybean oil dropped, although expanding biodiesel programs in Indonesia and Malaysia limited losses.
After prices slumped 2.8% in the previous session, the Bursa Malaysia Derivatives' June crude palm oil contract eased by another 0.88 % to 4,507 Malaysian ringgit ($1,152.83) per metric ton. The July contract declined by a further 0.83% to 4,541 ringgit/mt.
A strengthening local currency, making exports more expensive, also weighed on prices, with Malaysian ringgit rising by another 0.4% against the US dollar on Thursday.
Export markets in Indonesia and Malaysia have recently softened, largely due to lower shipments to the Middle East due to the ongoing conflict, and weakening demand in India due to high prices.
A recent rally in palm oil prices have improved competitiveness of rival oils, straining demand from Sub-Saharan Africa and Asia, where buyers adopt a more cautious approach in importation and delay purchases until prices normalize, The Edge Malaysia reported, citing Malaysian Palm Oil Council chief executive Belvinder Sron.
In China, demand patterns show a shift from palm oil to palm oil products, giving Indonesia a competitive edge versus Malaysia, Sron reportedly said.
Nonetheless, top Southeast Asian palm oil producers have announced plans to accelerate their biodiesel programs to help secure domestic energy supply, in turn increasing respective local demands for palm oil.
Malaysia will raise palm-based biodiesel blending to 15% from the current 10% beginning June, while Indonesia will increase ratio to 50% from 40% beginning July.
Malaysia's initiative will reportedly absorb an additional 300,000 metric tons per year of palm oil, accounting for 4% to 5% of the country's total palm oil output, which Sron sees as a "modest" impact to the export market.
On the contrary, Indonesia's move is projected to consume an additional 1.5 million metric tons of palm oil annually, significantly tightening exportable supplies, Sron reportedly said.
Analyst Dorab Mistry, as cited by Reuters, expects palm oil futures to remain strong in the coming months due to rising biodiesel demand, with June levels likely to touch the 5,000 ringgit/mt mark and mid-July levels to approach 5,200 ringgit/mt.
In the US, June ethanol prices on the NYMEX extended losses for a third straight session, declining 2.96% to about $1.97 per gallon on Wednesday, as weekly US industry data showed a decline in exports and increases in production and stocks.
Ethanol production averaged 1.02 million barrels per day in the week ending May 1, up versus the previous week's 1.01 mmbbls/d. Exports dropped week over week to 139,000 barrels per day from 170,000 b/d.
Accordingly, domestic stocks rose to 26.0 million barrels from 25.9 mmbbls.