Tuesday November 23, 11:38 AM KUALA LUMPUR (Dow Jones)--Edible oil pricesare likely to fall in 2005, with Malaysian crude palm oil futures expectedto touch MYR1,300 a metric ton amid supply pressures from large globaloilseed crops, influential analyst Dorab E. Mistry said.

But three potentially friendly factors, including a sharp decline in theU.S. dollar, may emerge to lend support to the market, said Mistry,director of London-based Godrej International Ltd.

Mistry, whose projections are closely watched by palm oil marketparticipants, said good weather conditions and potentially big cropssuggest 2005 will see a stock buildup in both grains and oilseeds afterfour years of depletion.

Soybean production in the U.S., the world's biggest producer, is expectedby the U.S. Department of Agriculture to hit a record 3.15 billion bushelsin the 2004/05 marketing year.

Stocks have been forecast to recover to 460 million bushels from 112million bushels in 2003/04.

With the soybean crop now being planted in South America also expected tobe large, there will be pressure on edible oil prices to move lower in2005.

"I believe vegoil markets will decline in January once the position onSouth American crops is clear," Mistry told Dow Jones Newswires in arecent interview.

"2005 will be characterized by relatively lower prices," he said.

Mistry said he expects CPO futures on the Bursa Malaysia Derivatives "togo down to MYR1,300 and to stabilize around MYR1,400" but didn't providespecific target dates for those prices to be reached.

"Without a big weather problem, it will be difficult for prices to rally."

The benchmark third-month CPO futures contract ended at MYR1,469 Monday.The last time the contract traded at MYR1,300 was in October 2003.

Bio-diesel Demand May Support Prices

Amid the bearish outlook, several positive factors may emerge next year tocushion the expected decline in prices, Mistry said.

One such factor to watch would be the price of fuel oil and a growingtrend globally to promote the production of bio-diesel.

A surge in crude oil prices in recent months has prompted governmentsworldwide to encourage the use of alternative fuel sources such asbio-diesel, which are mostly vegetable oil-based.

That includes the United States, where President George Bush approved inOctober a bill to offer tax incentives for the production of bio-diesel.

There has been widespread talk in recent months that high crude oil priceswould significantly boost bio-diesel production, which in turn would bepositive for edible oil demand.

Mistry said, however, it may be premature for market players to get overlyexcited about the bio-diesel sector.

"We need to study the economics of bio-diesel very closely in order todetermine how important this factor will turn out to be. At present, Ibelieve this factor has been over-hyped," he said.

El Nino, Weak Dollar Also Positive Factors

Mistry said the possibility of a strong El Nino weather phenomenon wasalso a potentially supportive factor for palm oil prices.

There has been some concern in the palm oil market that El Nino, whichcauses dry conditions, could develop in Southeast Asia next year, hurtingCPO production in the world's top two producers, Malaysia and Indonesia.

Slower growth in palm oil production would be positive for prices.

"The palm market is clearly relying on this factor," Mistry said.

Although some weather forecasts have warned that there is a risk of ElNino developing, there have been no clear signs yet, with continuing rainsacross the region.

Continued sharp declines in the U.S. dollar, which briefly weakened to anall-time low against the euro this month, may also be a positive factorfor palm oil prices.

"A weak dollar is friendly to commodity prices and will help make palm oilmore competitive against oil prices in euros or in domestic currencies,"Mistry said.

The Malaysian ringgit has been pegged at MYR3.8 to the dollar since 1998.