MARKET DEVELOPMENT
Palm Oil Climbs to 8-Year High on Likely Shortfall in Supplies
Palm Oil Climbs to 8-Year High on Likely Shortfall in Supplies
3/4/08 (Bloomberg) -- Palm oil futures rose to the highest in more than eight years on concern global supplies of cooking oil will lag behind demand led by China and India.
The commodity has risen 34 percent in the past six months while competing soybean oil has gained 36 percent as soybeans lose acreage to corn, increasingly grown to meet surging demand for ethanol as an alternative fuel. Soybean oil and palm oil are the world's most consumed edible oils.
``Output will clearly be impacted and lead to supply shortages,'' said Michael Greenall at BNP Paribas Capital (Malaysia) in Kuala Lumpur. ``Soybean oil is up and palm oil is moving in tandem.''
Palm oil for June delivery, the most active contract, rose as much as 37 ringgit, or 1.8 percent, to 2,098 ringgit ($606) a ton on the Malaysia Derivatives Exchange. That's the highest since Jan. 15, 1999 when it touched 2,105 ringgit.
The contract traded at 2,096 ringgit at the close of the morning session.
Farmers will reduce U.S. soybean planting by 11 percent to 67.1 million acres, more than the 8.4 percent drop estimated by analysts, the U.S. Department of Agriculture said March 30. Corn planting will rise 15 percent to 90.4 million acres because demand for ethanol makes the crop more profitable, USDA said.
Soy oil for May delivery fell 0.3 percent to 32.66 U.S. cents a pound at 2:41 p.m. Singapore time in after-hours electronic trading on Chicago Board of Trade. The contract gained 0.9 percent yesterday.
Risk Profile
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Palm oil futures are trading in ``backwardation'', with near-term delivery contracts, trading above those for later delivery, suggesting investors expect supplies of palm oil to catch up with demand and prices may fall, said Steven Lau, palm oil trader at Itochu Singapore Pte Ltd. in Singapore.
``I would suggest investors watch on the sidelines before jumping in at the moment because the risk reward profile of palm oil does look a bit too high,'' Lau said.
In soybean oil, longer-dated contracts are trading at premiums to those for near-term delivery.
Malaysia and Indonesia produce 85 percent of the world's palm oil.
The commodity has risen 34 percent in the past six months while competing soybean oil has gained 36 percent as soybeans lose acreage to corn, increasingly grown to meet surging demand for ethanol as an alternative fuel. Soybean oil and palm oil are the world's most consumed edible oils.
``Output will clearly be impacted and lead to supply shortages,'' said Michael Greenall at BNP Paribas Capital (Malaysia) in Kuala Lumpur. ``Soybean oil is up and palm oil is moving in tandem.''
Palm oil for June delivery, the most active contract, rose as much as 37 ringgit, or 1.8 percent, to 2,098 ringgit ($606) a ton on the Malaysia Derivatives Exchange. That's the highest since Jan. 15, 1999 when it touched 2,105 ringgit.
The contract traded at 2,096 ringgit at the close of the morning session.
Farmers will reduce U.S. soybean planting by 11 percent to 67.1 million acres, more than the 8.4 percent drop estimated by analysts, the U.S. Department of Agriculture said March 30. Corn planting will rise 15 percent to 90.4 million acres because demand for ethanol makes the crop more profitable, USDA said.
Soy oil for May delivery fell 0.3 percent to 32.66 U.S. cents a pound at 2:41 p.m. Singapore time in after-hours electronic trading on Chicago Board of Trade. The contract gained 0.9 percent yesterday.
Risk Profile
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Palm oil futures are trading in ``backwardation'', with near-term delivery contracts, trading above those for later delivery, suggesting investors expect supplies of palm oil to catch up with demand and prices may fall, said Steven Lau, palm oil trader at Itochu Singapore Pte Ltd. in Singapore.
``I would suggest investors watch on the sidelines before jumping in at the moment because the risk reward profile of palm oil does look a bit too high,'' Lau said.
In soybean oil, longer-dated contracts are trading at premiums to those for near-term delivery.
Malaysia and Indonesia produce 85 percent of the world's palm oil.