17.06.2021 (www.argusmedia.com) - Malaysian crude palm oil (CPO) prices should continue to find firm support from rising global demand, despite sharp slides in futures this week, with both ending stocks and the stock-to-use ratio projected at historical lows next year.

Kuala Lumpur CPO front-month futures closed at near five-month lows of 3,559 ringgit/t ($859.66/t) on 14 June, having lost 671 ringgit/t since 7 June as the market responded to larger global supply prospects from July and concerns that the US may reduce biofuel blending requirements to support stretched domestic soybean supply.

But downward pressure from these factors could still be short-lived. Despite the US Department of Agriculture (USDA) projecting 76.38mn t of global palm oil output in the July 2021-June 2022 marketing year, up from 73.1mn t this year, rising global consumption continues to outpace output, with ending stocks revised to their lowest since 2016-17 in the USDA's latest June projection at 11.1mn t.

Meanwhile, the global stock-to-use ratio for the wider vegetable oil complex is expected to reach its lowest next year since 2003-04, with the soybean market also contending with similarly strong global consumption and weak inventories.

And even with the US government gesturing to reduce blending requirements this week, market participants largely do not expect any mandates to be enacted, given President Joe Biden's expressed commitments to promoting lower-carbon energy.

Monthly US soybean oil production reached 2.2mn t in March, outpacing February by 300,000t and the previous year by around 20,000t on rising demand despite record high international prices, with the prompt Chicago Board of Trade soybean oil contract having reached $1,272.73/t by 24 March, up from $621.70/t at the start of 2020-21.

Overall, the wider vegetable oil complex remains broadly well supported, with speculators' net long positions for soybean futures still at all-time highs for this period in the season. Physical demand for palm oil remains elevated, with China expected to import 7.2mn t in 2021-22, up by 400,000t on the year, and India due to receive 8.3mn t, broadly in line with a year earlier.

By Andrew Kanyemba