Tuesday November 23, 2004 - THE US Department of Agriculture'sconfirmation that major soybean producing areas in the United States havebeen affected by the Asian soybean rust fungus could drive crude palm oil(CPO) prices forward, especially next year.

CPO prices, which came down from a high of RM2,019 a tonne in April toRM1,450 early this month, turned around last week, hitting almost RM1,500a tonne, in line with the rally on the soybean complex at the ChicagoBoard of Trade.

Despite the US registering a record soybean crop during the 2003-2004season, industry players and analysts are concerned over the impact thewidespread rust fungus would have on the soybean crop for the 2004-2005season to be harvested in August or September next year.

If the fungus proves damaging to the US soybean crop, market playerspredict that CPO will turn slightly bullish, especially in the second halfof next year, and trade at RM1,700 a tonne.

In the near to medium term, CPO prices will likely trade at betweenRM1,400 and RM1,500 a tonne.

Malaysian Palm Oil Association chief executive M.R. Chandran said a severerust fungus outbreak could result in soybean production being slashed byalmost 20%. Fungicide treatment would also raise production costs.

Chandran told StarBiz that, previously, many players had predicted higherworld oil seeds crop in the 2004-2005 season at about 7.5 million tonnes,against world demand of 4 million to 4.5 million tonnes.

Soybean supply was expected to increase by 5 million tonnes, palm oil byone million tonnes, and rapeseed/cotton by two million tonnes. Sunflowerwas expected to drop by 500,000 tonnes.

Stock ratio, estimated at 3 million tonnes, was already at a low level,added Chandran.

Soybean supply, being reduced by about 10% by the rust factor, woulddefinitely spell good news for CPO and other edible oils, he said, addingthat prices would turn bullish by the second half of next year.

On the local front, one plantation analyst said palm oil exports so farthis month appeared to be better than expected.

In fact, exports in the first 20 days of this month are 5% higher comparedwith last month. This will be good for market sentiment, she added.

It is believed that China, one of Malaysia's major palm oil importers,will start to stock up on palm oil for winter season.