MARKET DEVELOPMENT
Ample Global Oilseed Supplies to Dent Palm Oil Rally: Sources
Ample Global Oilseed Supplies to Dent Palm Oil Rally: Sources
04/03/2014 (Economic Times) - Bumper global oilseed supplies could dent a recent rally in palm oil prices that has been triggered by crop damaging dry weather in top producers Indonesia and Malaysia, analysts and traders said on Monday.
The countries, which account for 85 per cent of the global palm oil output, have been baked by extreme hot and dry weather unusual for tropical countries, threatening yields and pushing up benchmark prices to a 17-month high this week.
In peninsular Malaysia, 15 areas have not had rainfall in more than 20 days, with some of them dry for over a month, the Malaysian Meteorological Department has said.
"Right now the momentum is in the market, I wouldn't be surprised to see another short-term spike, but I think ultimately heading into the second quarter prices should start to fall," Abah Ofon, an analyst with Standard Chartered in Singapore, said on the sidelines of an industry conference in Kuala Lumpur. "There is much more supply of edible oil around."
Output of rival soyoil should see a spike, with Brazil - which is expected to emerge as the world's top soybean exporter this year on track for a record crop of 90 million tonnes, according to the US Department of Agriculture, up from 82 million tonnes a year ago.
Argentina's soybean output is seen climbing to 54 million tonnes this year, compared with 49.3 million tonnes in 2013. Among other oilseeds, Canadian canola stockpiles reached a record 12.6 million tonnes as of Dec. 31, up 55.3 per cent from a year ago, a Statistics Canada survey in February showed, as an unprecedented crop and logistics problems left more of the oilseed on farms and elevators.
"We are bearish on palm oil as the rally is mainly because of risk-on trade similar to what we have seen in other commodities," said one leading edible oil trader on the margins of an industry conference in Kuala Lumpur.
El Nino underpins
Still, concerns about the El Nino weather pattern that can trigger drought in some parts of the world while causing floods in others will keep a floor under palm prices. A strong El Nino can wither crops in Australia, Southeast Asia, India and Africa while drenching other parts of the globe such as the U.S. Midwest and Brazil in rains.
Scientists are still debating the intensity of a potential El Nino, but Australia's Bureau of Meteorology and the US Climate Prediction Center have already warned of increased chances one will strike this year.
"There are increasing speculations and signs that El Nino will kick in later this year and if that were to happen, we will see dryness in the Asian regions, including major palm-producing countries," said Tan Chee Tat, a Phillip Futures analyst. "This will definitely trim output for palm oil, contrary to many predictions which said palm oil supply is likely to increase this year."
On Monday, Malaysian palm oil futures jumped 2.1 per cent to 2,860 ringgit ($870) a tonne, highest since Sept. 2012, adding to gains of nearly 10 percent last month. February's rally was the biggest since October.
Brazil weather
Oilseed prices may draw further support from concerns over dryness during the growing period and rains at the time of harvest in Brazil which could reduce production.
South American weather woes have underpinned U.S. soybean futures that rose to a more than 5-month high last week. Brazil's No. 2 soy growing state Parana lost some 2 million tonnes of soybeans to drought and hot weather in January and February, the state government said on Tuesday. But traders at the conference said a slight reduction in output is unlikely to impact Brazilian exports, reiterating that there were plentiful supplies of edible oil worldwide.
"If you see the Brazilian soybean crop at 85 million tonnes or 90 million tonnes, the reality is that their exports capacity is going to remain the same," said one analyst. Brazil's crushing association, Abiove, is standing by its forecast for a record crop of 88.6 million tonnes despite concerns over heavy rain in top growing state Mato Grosso and dry weather in Parana.
The countries, which account for 85 per cent of the global palm oil output, have been baked by extreme hot and dry weather unusual for tropical countries, threatening yields and pushing up benchmark prices to a 17-month high this week.
In peninsular Malaysia, 15 areas have not had rainfall in more than 20 days, with some of them dry for over a month, the Malaysian Meteorological Department has said.
"Right now the momentum is in the market, I wouldn't be surprised to see another short-term spike, but I think ultimately heading into the second quarter prices should start to fall," Abah Ofon, an analyst with Standard Chartered in Singapore, said on the sidelines of an industry conference in Kuala Lumpur. "There is much more supply of edible oil around."
Output of rival soyoil should see a spike, with Brazil - which is expected to emerge as the world's top soybean exporter this year on track for a record crop of 90 million tonnes, according to the US Department of Agriculture, up from 82 million tonnes a year ago.
Argentina's soybean output is seen climbing to 54 million tonnes this year, compared with 49.3 million tonnes in 2013. Among other oilseeds, Canadian canola stockpiles reached a record 12.6 million tonnes as of Dec. 31, up 55.3 per cent from a year ago, a Statistics Canada survey in February showed, as an unprecedented crop and logistics problems left more of the oilseed on farms and elevators.
"We are bearish on palm oil as the rally is mainly because of risk-on trade similar to what we have seen in other commodities," said one leading edible oil trader on the margins of an industry conference in Kuala Lumpur.
El Nino underpins
Still, concerns about the El Nino weather pattern that can trigger drought in some parts of the world while causing floods in others will keep a floor under palm prices. A strong El Nino can wither crops in Australia, Southeast Asia, India and Africa while drenching other parts of the globe such as the U.S. Midwest and Brazil in rains.
Scientists are still debating the intensity of a potential El Nino, but Australia's Bureau of Meteorology and the US Climate Prediction Center have already warned of increased chances one will strike this year.
"There are increasing speculations and signs that El Nino will kick in later this year and if that were to happen, we will see dryness in the Asian regions, including major palm-producing countries," said Tan Chee Tat, a Phillip Futures analyst. "This will definitely trim output for palm oil, contrary to many predictions which said palm oil supply is likely to increase this year."
On Monday, Malaysian palm oil futures jumped 2.1 per cent to 2,860 ringgit ($870) a tonne, highest since Sept. 2012, adding to gains of nearly 10 percent last month. February's rally was the biggest since October.
Brazil weather
Oilseed prices may draw further support from concerns over dryness during the growing period and rains at the time of harvest in Brazil which could reduce production.
South American weather woes have underpinned U.S. soybean futures that rose to a more than 5-month high last week. Brazil's No. 2 soy growing state Parana lost some 2 million tonnes of soybeans to drought and hot weather in January and February, the state government said on Tuesday. But traders at the conference said a slight reduction in output is unlikely to impact Brazilian exports, reiterating that there were plentiful supplies of edible oil worldwide.
"If you see the Brazilian soybean crop at 85 million tonnes or 90 million tonnes, the reality is that their exports capacity is going to remain the same," said one analyst. Brazil's crushing association, Abiove, is standing by its forecast for a record crop of 88.6 million tonnes despite concerns over heavy rain in top growing state Mato Grosso and dry weather in Parana.