MARKET DEVELOPMENT
Palm Oil Dearth Lifts Soyabeans
Palm Oil Dearth Lifts Soyabeans
23/03/2016 (Financial Times) - The El Niño weather phenomenon, which has continued to exert its influence, has hit the production of palm oil, boosting prices. This in turn has buoyed soyabeans, which are processed into oil — mainly used for cooking — as well as meal, a high protein feed for livestock.
“The soyabean market is taking bullish cues from palm oil despite the weak meal situation,” says Kona Haque, head of research at ED & F Man, the agricultural commodities traders.
With roughly 20 per cent of a bushel of soyabeans turned into oil and 80 per cent into soya meal, the soyabean price tends to be driven by the supply and demand of feed crops, including corn and wheat. High inventories and bumper harvests in soyabeans and grains have weighed on the market.
However, the 45 per cent jump in palm oil prices since its 2015 low in August to 2,685 ringgit a tonne in Kuala Lumpur has ignited the soya oil market, which in turn has supported soyabeans. Since the start of the year, soya oil has rallied 10 per cent to 33.64 cents a pound, while soyabeans are up 4 per cent above $9 a bushel.
The palm oil rally comes as output in Indonesia and Malaysia, the two leading producers, have been hit by last year’s dry conditions. January production in the number two producer Malaysia fell 19 per cent from the previous month, to 1.13m tonnes — an 11-month low, and the lowest production in January in four years.
Dorab Mistry, veteran oilseeds analyst and director at Godrej Industries, an Indian chemicals manufacturer, forecasts Indonesian and Malaysian production to fall about 4 per cent in 2016 — Indonesia falling from 32m tonnes to 31m and Malaysia from 20m to 19m.
The tightness in the palm oil market has led to importers switching to cheaper alternatives.
“The world is awash with soyabeans, but people are switching to from palm oil to soya oil and stocking up,” says Mr Mistry. For example, import volumes for India, a leading palm oil consumer, have risen 25 per cent over the past four years but quadrupled for soya oil.
With both countries seeing rainfall over the past few weeks, many analysts believe palm oil production will recover from the middle of the year and weigh on the price, and also of other oilseeds.
Stefan Vogel, head of agricultural commodity markets research at Rabobank, believes the current rally in soya oil prices may be overdone. “[The futures price] for the second half of the year and early next year of about 34 cents a pound is too high,” he says.
However, until production rises from about July, many see palm oil prices continuing to strengthen. “Prices will rise at least another 10-15 per cent,” says Mr Mistry. “They will almost certainly hit 3,000 ringgit, and may go higher than that.”
The question is how long palm oil will drive soyabean prices.
With the current soyabean harvest in Argentina and Brazil under way, the high level of exports could start eroding this year’s gains.
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“The crops are massive, the currencies are weak and exports are very, very strong,” says Mr Vogel.
Prices are especially susceptible from overseas sales from Argentina, where the new government reduced its export tax by 5 percentage points to 30 per cent. Guillermo Rossi, grains and oilseeds analyst at the Rosario board of trade in Argentina, says soyabean production this year is forecast to be between 58m to 60m tonnes, slightly lower than last year’s 61.4m.
However, with farmers holding on to their crops for security, inventories of soyabeans and soya meal remain at record levels.
“Argentina was by far the number one exporter of soyabean meal and oil during recent months,” says Mr Rossi, with soya meal shipments of 5.55m tonnes during January and February, against 3m in the same period last year.
“Exports of [soya] by-products from Argentina are expected to be very strong in the months to come. I’m optimistic,” he adds.
Elsewhere, the market is also focused on the Prospective Plantings report from the US Department of Agriculture, a survey of this year’s US plantings released at the end of the month.
Further ahead, farmers and traders will also be keeping a close eye on weather problems in the US. After a strong El Niño, a La Nina tends to follow. This weather phenomenon tends to bring dryness to the US midwest, and was behind the devastating droughts which wrought havoc on the US grain market in 2012.
The US meteorology agency NOAA is forecasting a 50 per cent chance of La Nina developing this year. However, for analysts and investors, it may be too early to call. Mr Vogel says: “People are referring to the year of 2012, but there isn’t any proof yet.”
“The soyabean market is taking bullish cues from palm oil despite the weak meal situation,” says Kona Haque, head of research at ED & F Man, the agricultural commodities traders.
With roughly 20 per cent of a bushel of soyabeans turned into oil and 80 per cent into soya meal, the soyabean price tends to be driven by the supply and demand of feed crops, including corn and wheat. High inventories and bumper harvests in soyabeans and grains have weighed on the market.
However, the 45 per cent jump in palm oil prices since its 2015 low in August to 2,685 ringgit a tonne in Kuala Lumpur has ignited the soya oil market, which in turn has supported soyabeans. Since the start of the year, soya oil has rallied 10 per cent to 33.64 cents a pound, while soyabeans are up 4 per cent above $9 a bushel.
The palm oil rally comes as output in Indonesia and Malaysia, the two leading producers, have been hit by last year’s dry conditions. January production in the number two producer Malaysia fell 19 per cent from the previous month, to 1.13m tonnes — an 11-month low, and the lowest production in January in four years.
Dorab Mistry, veteran oilseeds analyst and director at Godrej Industries, an Indian chemicals manufacturer, forecasts Indonesian and Malaysian production to fall about 4 per cent in 2016 — Indonesia falling from 32m tonnes to 31m and Malaysia from 20m to 19m.
The tightness in the palm oil market has led to importers switching to cheaper alternatives.
“The world is awash with soyabeans, but people are switching to from palm oil to soya oil and stocking up,” says Mr Mistry. For example, import volumes for India, a leading palm oil consumer, have risen 25 per cent over the past four years but quadrupled for soya oil.
With both countries seeing rainfall over the past few weeks, many analysts believe palm oil production will recover from the middle of the year and weigh on the price, and also of other oilseeds.
Stefan Vogel, head of agricultural commodity markets research at Rabobank, believes the current rally in soya oil prices may be overdone. “[The futures price] for the second half of the year and early next year of about 34 cents a pound is too high,” he says.
However, until production rises from about July, many see palm oil prices continuing to strengthen. “Prices will rise at least another 10-15 per cent,” says Mr Mistry. “They will almost certainly hit 3,000 ringgit, and may go higher than that.”
The question is how long palm oil will drive soyabean prices.
With the current soyabean harvest in Argentina and Brazil under way, the high level of exports could start eroding this year’s gains.
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“The crops are massive, the currencies are weak and exports are very, very strong,” says Mr Vogel.
Prices are especially susceptible from overseas sales from Argentina, where the new government reduced its export tax by 5 percentage points to 30 per cent. Guillermo Rossi, grains and oilseeds analyst at the Rosario board of trade in Argentina, says soyabean production this year is forecast to be between 58m to 60m tonnes, slightly lower than last year’s 61.4m.
However, with farmers holding on to their crops for security, inventories of soyabeans and soya meal remain at record levels.
“Argentina was by far the number one exporter of soyabean meal and oil during recent months,” says Mr Rossi, with soya meal shipments of 5.55m tonnes during January and February, against 3m in the same period last year.
“Exports of [soya] by-products from Argentina are expected to be very strong in the months to come. I’m optimistic,” he adds.
Elsewhere, the market is also focused on the Prospective Plantings report from the US Department of Agriculture, a survey of this year’s US plantings released at the end of the month.
Further ahead, farmers and traders will also be keeping a close eye on weather problems in the US. After a strong El Niño, a La Nina tends to follow. This weather phenomenon tends to bring dryness to the US midwest, and was behind the devastating droughts which wrought havoc on the US grain market in 2012.
The US meteorology agency NOAA is forecasting a 50 per cent chance of La Nina developing this year. However, for analysts and investors, it may be too early to call. Mr Vogel says: “People are referring to the year of 2012, but there isn’t any proof yet.”