February 28, 2005
Soybean oil prices soar on insufficient rains in Brazil
Soybean oil prices surged 5.7 per cent in Chicago, the biggest fluctuation of any commodity market today, on speculation that rains in Brazil will be insufficient to reverse damage to soybean crops after a four-week dry-spell.
Soybean oil, used in salad dressing, baking and fuel, has surged 21 per cent from a 31-month low on February 3 as drought threatened to reduce soybean production in South America. Brazil, the second-largest grower behind the US, may get less than 0.75 inch of rain in the next 24 hours, said John Dee, president of Global Weather Monitoring in Lake Linden, Michigan.
"The market is adjusting to a smaller global supply situation," said Anne Frick, senior oilseed analyst for Prudential Securities in Chicago. This month's rally was fueled by speculators and food companies that bought supplies they expected would remain cheap through midyear, Frick said.
Soybean oil futures for May delivery surged 1.23 cents to 22.77 cents a pound on the Chicago Board of Trade, the highest closing price since September 15. Prices rose 13 per cent this week, the biggest weekly gain since July 2001. A futures contract is an agreement to buy or sell a commodity at a specified price and date.
The price of soybeans, which are crushed to make animal feed and vegetable oil, rose to the highest in almost six months, capping the biggest weekly gain since July 2001 on speculation that Brazil will harvest a smaller crop than expected earlier this year.
Overnight rains in Argentina, the third biggest grower, were less than 0.5 inch on less than 20 per cent of the soybean production region, raising speculation the system will fail to deliver the 1-inch rains forecast tomorrow in Brazil, said David Streit, a meteorologist for Earth Satellite Corp Rockville, Maryland.
"Fears are increasing that this rain event will fizzle, increasing the stress on soybeans in southern Brazil," said Gregg Hunt, a market analyst for Fox Investments Inc in Chicago.
