MARKET DEVELOPMENT
Macquarie 'Bullish' on Palm Oil, Sugar Prices
Macquarie 'Bullish' on Palm Oil, Sugar Prices
09/01/2015 (AgriMoney.com) - Macquarie took an upbeat view over prospects for palm oil and sugar prices, even as the United Nations highlighted their vulnerability to weakened oil prices.
The UN food agency, the Food and Agriculture Organization, noting the drop in crude futures, which this week fell below $50 a barrel for the first time in five years, highlighted the knock-on effects on palm oil and sugar – commodities both linked closely to energy markets.
"Lower crude oil prices spelled bearish price trends for commodities that can be used for biofuels, notably sugar but also palm oil," the FAO said.
"Falling crude oil prices, which reduce the volume of sugar crops being converted into ethanol, weighed on international sugar quotations" last month, when values as measured by an FAO index dropped 4.8%.
Meanwhile, "the recent slump in crude oil prices depressed demand for palm oil as a biodiesel feedstock," the agency said, estimating that edible oil prices overall dropped 2.4% in December.
'Excessive rains'
However, the FAO acknowledged that, for palm oil, concerns over heavy flooding in Malaysia, the second-ranked palm oil producer and exporter, had put upward pressure on prices of the vegetable oil late last month.
"Towards the end of December prices recovered, as excessive rains slowed down harvesting and crushing operations in Malaysia amid higher-than-expected global export demand," the agency said.
The recovery in palm oil futures continued on Thursday, when the March contract at one point hit 2,379 ringgit a tonne in Kuala Lumpur, the highest for a benchmark lot since July.
The contract finished at 2,369 ringgit a tonne, a gain of 1.7% on the day, and up 4.5% so far in 2015, besides closing above its 200-day moving average for the first time in seven months.
'Bullish outlook for vegoils'
And Macquarie forecast continued strength for palm oil thanks to Malaysia's floods, which will keep prices of the vegetable oil "at high levels for quite a while, driven by the long-term impact heavy rains will have on the harvest and infrastructure".
Indeed, the bank said that it had a "bullish outlook for vegoils" overall, citing too a boost from the energy sector, in terms of a raised mandate in Brazil for blending biodiesel, made in the country mainly from soyoil, into diesel.
"The shift in the biodiesel mandate in Brazil is likely to support soyoil prices," the bank said.
"Since Brazil is moving to a B7 blend, their domestic biodiesel use of soyoil may increase by nearly 40%."
'Bullish on sugar'
Macquarie was also upbeat on sugar price prospects, again in part on energy market dynamics, say that the "higher ethanol blending mandate expected to be introduced in Brazil in February will provide a major support for Brazilian ethanol demand and the sugar price".
Brazil is also raising the mandated level at which ethanol must be blended into gasoline, by 2.5 points to 27.5%.
"We remain bullish on the sugar index" as included in its MacPi agricultural commodity price monitor.
"Despite improved weather conditions and better harvest estimates across major producing regions, the market will still shift into a small deficit in 2015-16."
The UN food agency, the Food and Agriculture Organization, noting the drop in crude futures, which this week fell below $50 a barrel for the first time in five years, highlighted the knock-on effects on palm oil and sugar – commodities both linked closely to energy markets.
"Lower crude oil prices spelled bearish price trends for commodities that can be used for biofuels, notably sugar but also palm oil," the FAO said.
"Falling crude oil prices, which reduce the volume of sugar crops being converted into ethanol, weighed on international sugar quotations" last month, when values as measured by an FAO index dropped 4.8%.
Meanwhile, "the recent slump in crude oil prices depressed demand for palm oil as a biodiesel feedstock," the agency said, estimating that edible oil prices overall dropped 2.4% in December.
'Excessive rains'
However, the FAO acknowledged that, for palm oil, concerns over heavy flooding in Malaysia, the second-ranked palm oil producer and exporter, had put upward pressure on prices of the vegetable oil late last month.
"Towards the end of December prices recovered, as excessive rains slowed down harvesting and crushing operations in Malaysia amid higher-than-expected global export demand," the agency said.
The recovery in palm oil futures continued on Thursday, when the March contract at one point hit 2,379 ringgit a tonne in Kuala Lumpur, the highest for a benchmark lot since July.
The contract finished at 2,369 ringgit a tonne, a gain of 1.7% on the day, and up 4.5% so far in 2015, besides closing above its 200-day moving average for the first time in seven months.
'Bullish outlook for vegoils'
And Macquarie forecast continued strength for palm oil thanks to Malaysia's floods, which will keep prices of the vegetable oil "at high levels for quite a while, driven by the long-term impact heavy rains will have on the harvest and infrastructure".
Indeed, the bank said that it had a "bullish outlook for vegoils" overall, citing too a boost from the energy sector, in terms of a raised mandate in Brazil for blending biodiesel, made in the country mainly from soyoil, into diesel.
"The shift in the biodiesel mandate in Brazil is likely to support soyoil prices," the bank said.
"Since Brazil is moving to a B7 blend, their domestic biodiesel use of soyoil may increase by nearly 40%."
'Bullish on sugar'
Macquarie was also upbeat on sugar price prospects, again in part on energy market dynamics, say that the "higher ethanol blending mandate expected to be introduced in Brazil in February will provide a major support for Brazilian ethanol demand and the sugar price".
Brazil is also raising the mandated level at which ethanol must be blended into gasoline, by 2.5 points to 27.5%.
"We remain bullish on the sugar index" as included in its MacPi agricultural commodity price monitor.
"Despite improved weather conditions and better harvest estimates across major producing regions, the market will still shift into a small deficit in 2015-16."