CHICAGO (B)--Soyoil futures at the Chicago Board of Trade fell to the latest in a series of contract lows Aug. 4, pressured by the combination of burdensome stocks, a weak world oilseed market and the possibility of record high U.S. soybean production. However, some analysts see the prospect for prices to bottom in the fall, buoyed by a slowly improving world supply-demand outlook.
"Soyoil fundamentals are near-term bearish but longer-term constructive," said Anne Frick, oilseeds analyst with Prudential Securities in New York.
"We continue to look for a major cyclical low, with an accompanying turn in prices, during September."
Between now and the end of September, Frick sees nearby contracts falling below the July 1999 low of 14.65 cents per pound, with 14 cents providing bedrock support. Prices should firm up by the spring of 2001, marking the first phase of a new bullish cycle.
Spot August soyoil is currently hovering just above its contract low of 15.17 cents.
"We will need to generate some commercial export sales before you can say that the market has actually hit bottom, and that might not be until at least the fall," said Dale Gustafson, analyst with Salomon Smith Barney.
U.S. soyoil export sales for 1999-2000 are currently a remarkable 59% below a year ago, according to the weekly export sales report Aug. 3.
The weekly U.S. Department of Agriculture sales report reflects commercial business, which has dropped to minimal levels and recently has been outstripped by aid cargoes.
Gustafson noted that the market is struggling with large stocks and the absence of a seasonal decline in inventories.
"Usually, soyoil stocks have begun to drop by late spring, but we haven't seen that yet. We are still under a contra-seasonal trend of rising soyoil stocks, and we might not see stocks start to drop until the Census Bureau's report for August."
In the Census Bureau's U.S. fats and oils report for June, released on Aug. 3, soyoil stocks were pegged at 2.033 billion pounds, substantially greater than May's 1.992 billion.
According to Frick, nearby bearish factors include large U.S. soyoil stocks, paltry U.S. export bookings--especially commercial sales as opposed to donations--declining prices for competing domestic fats and oils, an autumn seasonal increase in Malaysian palm oil production and historical price patterns.
All of this suggests that prices should fall to more new lows in September. However, she pointed to a raft of potentially supportive factors that will play out over time.
Those factors included the outlook for reduced world production of rapeseed and sunseed in 2000-01, a slowing rate of increase in world palm oil production, strong domestic usage of U.S. soyoil, reduced South American supplies during the U.S. fall and winter and drought-related yield problems in China.
In its most recent issue, Oil World, the influential Hamburg-based newsletter, said: "Total demand for (world) oils and fats will be considerably larger, and this will require a drawdown of stocks next season."
Oil World said global output of the eight main edible oils is set to rise by 2.6 million tonnes in 2000-01, compared with growth of 5.0 million in 1999-2000. Still, the newsletter said stocks of oils and fats were likely to remain ample in the medium term.
China's expected entry into the WTO could trigger bilateral agreements to expand Chinese edible oil imports, analysts noted.
"China's entry into the WTO could lead to greater oil sales in 2001, but that is still a ways off," said Dan Cekander, analyst for FIMAT Futures.
Not all analysts think that improving world demand for soyoil will lead to a turnaround in U.S. prices, at least not during the next few months.
"For now, soyoil is a supply-driven market," said Cekander. "Soymeal demand is driving the crush, and any exports of U.S. soyoil in the fall should not be large enough to have a big impact on prices."
Cekander said the key is not the global outlook but rather whether the U.S. soybean crop continues to benefit from generally benign conditions in the Midwest.
"If there are above-trend U.S. soybean yields, December soyoil could drop another 100 to 200 points" (or one to two cents), he predicted . CBOT December is currently trading near 16 cents.