Caixin Futures: Middle East geopolitical tensions push up crude oil prices as palm oil leads the surge, breaking out of the consolidation range in the oils market

⑴ Today the entire oils and fats sector strengthened overall, with the main contract for palm oil leading the gains and breaking through its previous consolidation range. Geopolitical conflict in the Middle East pushed up crude oil, driving US soybean oil and Malaysian palm oil up in tandem. Malaysian spot prices rose, and sentiment resonated upward both domestically and internationally. Rising crude oil prices improved the profit margins for palm oil biodiesel, and combined with expectations of reduced production due to El Niño, long sentiment in the sector continues to heat up.⑵ Rapeseed oil for nearby contracts has benefited as the reduction in rapeseed production in Canada and Australia materializes, with supply contraction offering clear support. Distant-month palm oil benefits from the combined effects of costs and climate, and capital is gradually shifting to distant-month contracts. For spot goods, 24-degree palm oil in Guangdong rose by 190 yuan to 9,330 yuan per ton, soybean oil increased by 50 yuan to 8,750 yuan per ton, and imported rapeseed oil in Jiangsu climbed by 120 yuan to 10,640 yuan per ton.⑶ Soybean meal remains in a wait-and-see mode, with no chasing after high prices. Improved expectations for US soybean exports combined with less-than-optimistic weather in production regions have driven US soybean prices up, increasing import costs. Domestic soybean oil and soybean meal have risen accordingly, but spot goods are still in an inventory accumulation phase, with considerable supply pressure and average downstream demand. There is little enthusiasm for stockpiling, the supply-strong and demand-weak pattern remains unchanged, and spot prices continue to be at a discount. The core logic in the near future revolves around import costs, with focus on US soybean trends, weather, and China-US trade policy.⑷ For corn, short on rallies is advised. Spot prices continue to operate weakly, and the overall picture of supply abundance remains unchanged. High selling enthusiasm among traders in production regions is increasing short-term supply, while most downstream enterprises purchase as needed, showing little urgency to buy. In this context of strong supply and weak demand, short-term prices are expected to remain weak and fluctuate; attention should be paid to weather effects on new season corn. In terms of strategy, remain primarily short on rallies.⑸ For live hogs, it is also advised to stay short on rallies. There has been a noticeable cooling in secondary fattening recently, with some regions showing signs of increased slaughter. Spot prices have weakened, and futures corrections have validated earlier logic. In the medium to long term, there may be some theoretical recovery in breeding profitability, but the space is limited. On a month-over-month basis, a decline in sow inventory 10 months ago means that theoretical supply in the second half of the year will fall year-on-year, but the decrease is limited. The second half also ushers in peak consumption season. With reduced supply, increased demand, and frequent destocking policies, breeding profitability may see a phase of recovery, but the recommendation remains to stay short on rallies for outright positions.⑹ The outlook for eggs remains on hold for now, as spot prices have been fluctuating on the stronger side in recent days. On the supply side, hot weather has reduced laying rates and inventories remain low, resulting in a slight supply contraction. However, the persistently weaker price of small eggs compared to large eggs suggests short-term supply may see some increase and requires close attention. On the demand side, July to September is the peak season, terminal sales are smooth, but food factories have yet to start stockpiling and continue to purchase as needed. In a context of weak supply and strong demand, watch closely for marginal changes in supply and demand; given the current lack of certainty, it is advisable to remain on the sidelines for now.