USDA reporting the drought in Mid-West USA is continuing affects the yield of soybean. The yield of soybean may even lower than expected. It is indicating the cost of producing soybean oil will increase and soybean oil market share are suffering the potential threaten of discounted palm oil in global export market. Thus, I choose to go short on soybean oil in CBOT.
From demand aspect, the palm oil is the main substitute of soybean oil. As inventories surged in Indonesia and Malaysia, the price of palm oil heads to a huge discount. There is no doubt the low price palm oil will attract more customers in global market and soybean oil are facing more fierce competition in the market. Although the report from Bloomberg, India, the biggest import oil country, have 44% surge cooking oil demand for this year. Palm oil imports reach 8.1 million ton in 2012~2013, compared with 7.5 million tons in the previous year. Since, the discounted palm oil are increasing popular in India, the market share of soybean oil is highly likely replaced by it.
Moreover, The supply of soybean tighten compared to previous years. Brazil, another main export of soybean, is facing a server severe drought. The global market supply for soybean hit hard by the unexpected drought, while the global demand are remaining the same. This indicates the price of soybean will stay at a high price level for a relatively short-term.
In a conclusion, the price of soybean oil will decreased in the short term. Since, the competition of discounted palm oil in global market and increasing production cost.
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So what was the result of your decision? Were you able to make profits? Please describe more on your gain/loss on next posting. Thanks!