Chicago soybean oil rebounded on Tuesday as crude oil prices rose, while Malaysian palm oil retreated as weak export demand weighed on sentiment.
The October soybean oil contract on the Chicago Board of Trade ended three sessions of losses and rose 0.68% to 69.36 cents per pound in early trade, as the market reopened after a Monday public holiday.
Persisting geopolitical tensions in the Middle East have buoyed crude oil prices, providing support to biofuels whose economics become more comparatively more appealing when oil rises.
Meanwhile, Chicago soybeans extended losses due to profit-taking after prices hit the $13 per bushel mark last week.
The November soybean contract on the Chicago Board of Trade was down 0.17% to $13.07 per bushel in early trade, as the market positioned itself ahead of the US Department of Agriculture's supply and demand outlook report due on Sep. 11.
Soybean prices have been rising since August amid strong Chinese demand, which has lifted market optimism that the Asian country would fulfil its 25 million metric ton purchase pledge.
The USDA said on Friday that China's purchases of the new US soybean crop reached 5.7 mmt as of Aug. 13. Meanwhile, sales to unknown destinations, widely assumed to be China, stood at 3.8 mmt.
Strong buying has continued so far this month, with the latest report on Friday reflecting 250,600 metric tons of sales to unknown destinations, according to the USDA.
Yield uncertainties due to dry conditions in US producing regions also provided some upside.
Linn and Associates, as cited by ADM Investor Services, projects US production at 4.46 billion bushels, with a yield of 52 bushels per acre. These compare with the USDA's current forecasts of 4.52 billion bushels and 52.7 bushels per acre.
"Higher demand for both old and new crop leaves little wiggle room for US yields to fall below the current 52.7 bushels per acre forecast, or risk sharply lower stocks and even higher prices," said ADM analyst Mark Soderberg.
In Asia, Malaysian palm oil futures slipped on Tuesday, as weak exports offset supply uncertainties due to drought and forest fires in top producer Indonesia.
The Bursa Malaysia Derivatives' October crude palm oil contract closed lower by 0.21% to 4,806 Malaysian ringgit ($1,188.28) per metric ton. The November contract eased 0.04% to 4,976 ringgit/mt.
Forest fires have reportedly expanded to more than 202,000 hectares of land in Borneo and Sumatra, raising uncertainties over crop yields.
In Malaysia, current rainfall could limit the potential impact of El Nino weather phenomenon on output. While oil palms remained in seasonal production growth in August, output declined by only 0.87% month over month, according to industry association estimates, as cited by price reporting agency MySteel.
In terms of demand, narrower soybean oil-palm oil differentials weighed on Malaysia's exports in August, with cargo surveyors reportedly estimating a 6.5% to 14.9% decline in shipments compared with the previous month's levels.
Congested ports and high storage levels in top buyer India following recent heavy buying of vegetable oils could further weigh on near-term demand, according to Trading Economics.
Nonetheless, a weakening Malaysian ringgit may provide some support by making exports cheaper. The local currency eased against the US dollar by about 0.5% last week and it has dipped a further 0.4% so far this week.
In Indonesia, domestic demand is set to rise with the full implementation of a higher 50% biodiesel blend, targeted by Oct. 1. Exportable supplies could also decrease as production uncertainties grow due to drought.
"Key factors to monitor going forward include the actual impact of weather conditions in Indonesian producing regions on production, the pace of B50 policy implementation, and whether Malaysian export data show signs of improvement," MySteel said.
Meanwhile, October ethanol prices on the NYMEX ended a five-session rally and dipped 0.72% to $2.08 per gallon on Friday.