11/10/2009 (Rabobank) - In the coming months, palm oil prices look set for a downward correction, says Rabobank’s Agri Commodity Markets Research. The November report predicts a further build-up in palm oil stocks as production progresses through a seasonal upturn in Malaysia and Indonesia.

Competition from other oils
In recent weeks, palm oil spread against soy oil has also weakened after having recovered strongly during the first half of 2009. A build-up in both importer and exporter stock levels looks set to weigh on palm oil prices in coming months. The palm oil prices discount to soy oil prices has started to widen again, providing an incentive for consumers to switch consumption to palm oil.

However, a record soybean crop in South America is expected in the first quarter of 2010, and will likely pressure oilseed complex prices. 

Palm oil stocks
Palm oil prices look set for a downward correction in coming months based on increasingly bearish fundamentals. This is the first time in nearly 12 months that the MDEX palm oil futures curve has shown any sort of carry, which demonstrates the growing concern that a build-up in palm oil stocks is imminent.

This year, production in Malaysia has been below expectations as tree stress and dry weather resulting from the El Nino development have caused yields to fall below average levels. However, Rabobank estimates year-end Malaysian palm oil stocks will still reach 2 million tonnes creating a bearish price environment over the closing months of 2009.