09 August 2001(Business Times) – MALAYSIA'S palm oil industry is set tobenefit from the worsening US soyabean crop harvest, which has resulted infavourable prices for the product for the next few months - at least.

Traders contacted by Business Times concurred that the world's edible oilssupply is facing pressure at the moment which has resulted in palm oilprices being pushed even higher.

"There is not enough edible oils in the world right now.

The US is experiencing shrinking production in soyabean and both India andChina are having a shortage in both rapeseed and sunflower oil.

"Furthermore, the US Department of Agriculture has lowered its forecast ofsoyabean production between 2 and 3 per cent this year from the total of76 million tonnes produced last year," a trader said.

According to a foreign news report on Tuesday, the condition of the USsoyabean crop has unexpectedly taken a turn for the worse in the past weekas rising temperatures parched the farms and there were scattered showersin eastern Nebraska and Illinois.

According to the USDA, soyabean crop worsened throughout most of July dueto dry conditions and hot temperatures thus pushing prices 10.45 per centhigher during the month.

The US is the world's biggest producer of soyabean which accounted forsome 76 million tonnes last year.

"Possibly, the shortage is caused by the El Nino effects or prolongeddrought but it is too early to be certain," a Malaysian Palm Oil Board(MPOB) official said.

But, the official said, it is a supply driven market now even thoughdemand remains the same and prices should remain bullish until supplyimproves.

Meanwhile Malaysian Palm Oil Association (MPOA) chief executive M. R.Chandran said prices in the market are already showing an improvement inwhich buyers have locked in within the RM1,300 per tonne region.

"Forward sales from September to December have already been locked inbetween RM1,300 and RM1,350.

"It should be sustained at that level until the next round of soyabeanharvest which is not expected until October," he said.

Chandran said the huge discount between soyabean and palm oil is alreadyshowing signs of narrowing.

"Acccording to the latest prices of palm oil Rotterdam price of soyabeancarriage, insurance and freight (CIF) soyabean was sold at US$438 a tonne(US$1 = RM3.80) compared to crude palm oil at US$350 a tonne.

"This is a difference of US$88.

It used to be at around US$100 and Malaysia should aim to narrow thediscount gap at between US$30 and US$40," he said.

He added that US farmers may now have to work harder for their subsidiesnow that the Bush administration is reviewing the subsidy element that itis giving to them.

"It will not be as high as that during the Clinton administration," heconcluded.

Prices of palm oil breached the RM1,000 mark for the first time in July 12after languishing between RM600 a tonne and RM700 a tonne for the past 13months and an all time high of RM2,700 per tonne in 1998.

Malaysian physical palm oil price for August South closed at RM1,284 atonne yesterday compared with RM1,261 per tonne on Tuesday and RM1,266.50a tonne on Monday.

At the Malaysia Derivatives Exchange, futures contract for AugustSeptember, October and November each gained RM8 each to close at RM1,284 atonne, RM1,280 a tonne, RM1,282 a tonne and RM1,285 a tonne respectively.

Total volume gained 70 contracts to close at 11,262 contracts and openinterest went down 323 lots at 2,002 lots.