18/07/2011 (Borneo Post) - THE oil palm tree is a native to West Africa. Crude palm oil is extracted from the pulp (mesocarp) and is red in color while palm kernel oil is extracted from the inside kernel and white in color.

The production of crude palm oil and palm kernel oil are sophisticated processes. Few of the main processes begin with sterilisation and eventually reach the state of being refined, bleached and deodorised (RBD).

In the end, we get either RDBPO (palm oil) or RDBPKO (palm kernel oil) before it is sent for storage.

Palm cultivation began in the early 19th century as the British Industrial Revolution created a demand for palm oil for candle making and also as a lubricant for machinery.

Initially supplied by West African farmers, the supply was then expanded to Java by the Dutch in 1848. Palm oil was also introduced to Malaysia back when it was still under British colonisation in 1910 by Scottish, William Middleton Sime and English banker Henry Darby, where both founded Sime Darby & Co.

Palm oil has been the main  rival of soybean oil as the world’s leading source of oil. Other rivals include oil extracted from rapeseed, sunflower seed, peanut, cottonseed, palm kernel and olive. However, the combination of palm oil and palm kernel oil have overthrown soybean oil as the world’s major edible oil since year 2004.

During the early 90s, Malaysia was the world’s largest producer of palm oil with 51 per cent of world production. Federal Land Development Authority, known as FELDA, was formed in 1956 when the Land Development Act came into force with the main aim of eradicating poverty.

The role of FELDA is to develop new farms for the remote citizens and train them to be productive through effective agricultural management. Initial plantation was focused on rubber.

Later, the government’s policy began to emphasise on crop diversification in an effort to avoid being affected from the world’s plunging prices of rubber and tin.

In 1961, FELDA’s first palm oil settlement was established with 375 hectares (ha) of land. It later expanded to 685,500 ha in year 2000, which consisted of 76 per cent land under FELDA programme and cultivated palm plantation.

Currently, FELDA is the word’s biggest oil palm planter with land estates closed to 900,000 ha in Malaysia and Indonesia.

Worldwide traders, hedgers, food manufacturers and producers still preferred Malaysian palm oil due to its high quality.

This naturally creates good opportunity for Crude Palm Oil Futures (FCPO) to become successful in Malaysia and was also favoured by many foreign players to participate in our local markets for physical delivery.

In Bursa Malaysia, the FCPO contract size is 25 metric tonnes. Trading hours was based on Malaysian standard time from 10:30am to 12:30pm for the first trading session and a subsequent session from 3pm to 6pm. This is a physical delivery instrument traded in Malaysian ringgit currency.

We believe that Malaysia’s palm oil industry has much room to surge further in terms of demand and growth due to increasing world population. According to United States Census Bureau, the world human population will reach 10 billion by 2050 and therefore, demand of food will definitely surge.

According to Oil World 2007 statistics, total area of land in the world for plantation of soybean, sunflower and rapeseed are 92.63 million ha, 22.95 million ha and 27.29 million ha respectively.

Palm oil plantation only uses 9.86 million ha but is able to produce 36.9 million tonnes of oil compare with soybean which can only produce 35.19 million tonnes. The lower outputs are sunflower and rapeseed at 11.09 million tonnes and 18.34 million tonnes respectively.

The increase in world population also drives the demand of energy. As crude oil and coal supply are depleting, renewable energy such as biodiesel is becoming an alternative. Therefore it is another reason that will further extend the uses for palm oil utilisation.

If you have missed the trend for precious metals, energy or currency, you may look into palm oil instruments such as FCPO, FPKO or respective equities to rebuild your portfolio.