BULLISH DEMAND OUTLOOK PROPELS SOYOIL VALUES

BULLISH DEMAND OUTLOOK PROPELS SOYOIL VALUES

A bullish demand scenario likely to last into 1990-91 and increasing commodity fund activity have pushed soyoil futures to contract highs and pushed open interest on Friday to a record high.

Open positions in Chicago Board of Trade soyoil soared last Friday to 99,455 contracts, surpassing the previous high of 99,101, made June 21, 1988, at the height of that year's drought market.The surge in open interest suggests "a classic demand market," said Bill Lapp, analyst at ConAgra in Omaha, Neb.

The activity continued Monday as May soyoil futures closed the day at 23.30 cents per pound, up 22 points from Friday's close.

Most analysts polled by Knight-Ridder Financial News expected U.S. soyoil stocks to tighten further before the end of the marketing year and remain tight for at least the first half of 1990-91.

The U.S. Department of Agriculture currently pegs 1989-90 soyoil stocks at 1.050 billion pounds. However, there are widespread expectations for the carryout to dip below 1.0 billion pounds for the first time since 1985-86 and stay there for an extended period.

By the end of 1990-91, U.S. soyoil stocks are likely to be about 680 million pounds, said Steve Freed, analyst at Dean Witter Reynolds. The crushing pace will be driven primarily by soyoil for at least the first half of 1990-91, Mr. Freed said.

Stocks are likely to bottom early in 1990 before developments in South America spur a change in trend, he said.

''We could see a big surge in U.S. soymeal export demand on low Brazilian supplies," which will generate a higher crush pace to take the edge off the soyoil tightness, he said. He expects financial constraints to limit Brazil's soybean plantings this fall.

Growing domestic soymeal demand, a function of excellent feeding profitability in the livestock sector, also could incite a higher crushing pace and prevent soyoil stocks from dwindling too far.

Mickey Luth, analyst at Shearson Lehman Hutton, said a 1.0-million- short-t on swing in soymeal demand was equivalent to about 450 million pounds of soyoil. This suggests the long-term outlook for soyoil stocks is clouded, Mr. Luth said.

Stocks still will be tight in 1990-91, but this will have less of an impact on prices if export demand is centered on South America.

The jump of about 15 percent in domestic soyoil use from year-ago levels is partly a function of low supplies of competing vegetable oils and will not turn itself around before 1990-91.

''For now, there is virtually no choice but corn oil or soyoil," a cash-connected commission house analyst said. Cottonseed oil and sunoil supplies will bounce back, but soyoil stocks still could end 1990-91 at 825 million pounds, she said.

Even so, "unless there's a drought, soyoil prices should not top 23.50 cents to 24 cents per pound" or move much beyond 40 percent of product crush value, the analyst said.

The high premium of soyoil prices to palm oil has prompted some analysts to look for the eventual rebound of palm oil use in the United States after an extended slump, but others see little chance of this mostly because of health- related consumer pressure.

''Companies would lose more on the demand side than they could gain with lower-priced vegoil," Mr. Lapp said. As a result, soyoil stocks are unlikely to climb much above 1.0 billion pounds in the coming year, he said.

Tempering the bullish outlook is the prospect of soyoil imports from South America as spreads become wider in the summer, said Ann Frick, oilseeds analyst at Prudential Bache Securities in New York. Her upside objective is about 24 cents.

There is only a limited resemblance between this year's soyoil market and the major bull markets of the past, when soyoil tended to peak at 57 percent to 59 percent of crush value, Ms. Frick said.

''You need a bullish world oil situation," not just tight domestic supplies, to generate a rally of major proportions, she said.

Dick Loewy, analyst with Ag Resource Co., said U.S. soyoil stocks at 1.0 billion pounds were "still comfortable," and a price explosion beyond 25 cents for nearby soyoil was unlikely.

The seasonal increase in palm oil production later this year and competition for export business will see futures prices tail off, Mr. Loewy said.