MARKET DEVELOPMENT
Mistry Predicts Palm Oil Rally as ’Worst Over’ on Output
Mistry Predicts Palm Oil Rally as ’Worst Over’ on Output
30/10/2014 (Bloomberg) - Palm oil may rally as much as 10 percent by March as declining output in the world’s top producers depletes inventories, according to Dorab Mistry, director at Godrej International Ltd.
Futures may climb to 2,500 ringgit ($765) a metric ton, a level last seen in June, Mistry said, abandoning forecast for a slump to 1,900 ringgit first made on Sept. 15. Palm oil may trade in a range of 2,100 ringgit to 2,300 ringgit in the next several weeks, he said in remarks prepared for a conference in Kuala Lumpur. Prices settled at 2,263 ringgit on Bursa Malaysia Derivatives today, the highest at close since Aug. 4
Palm, used in everything from noodles to biofuels entered a bear market in July as expanding supplies from Indonesia and Malaysia and forecasts for a record U.S. soybean production widened a glut in cooking oils. That’s helped push global food costs to the lowest level since 2010. Reserves may peak by end October and decline through the first half of 2015, Mistry said.
“I believe the worst is over for oilseed farmers and plantations,” said Mistry, who’s traded palm oil for more than three decades. “After 10 December, I expect futures to rise steadily as production declines begin to bite and stocks decline. However, given the current macro economic outlook, I do not expect a bull market.”
Palm oil closed at 1,929 ringgit on Aug. 29, the lowest settlement price since March 2009. A close at or above 2,315 ringgit would be a 20 percent advance, meeting the common definition of a bull market. Futures lost 15 percent this year.
Drought Impact
Reserves in Malaysia climbed to 2.09 million tons in September, the highest since March 2013, its palm oil board said this month, while Indonesia’s stockpiles dropped to 2.2 million tons from 2.5 million tons in August, according to a Bloomberg survey. Malaysia produced an all-time high of 2.03 million tons in August, board data show.
While Malaysian production prospects for October remains good, it may have peaked in August and the lagged impact of a six-week long dry period in February-March may trim output by about 300,000 tons this year, Mistry said. The country may produce between 19.6 million tons and 19.8 million tons this year, while Indonesian output may reach 30 million tons at best, he said, cutting his earlier forecasts for as much as 20 million tons and more than 30.5 million tons respectively.
“Palm oil production is not performing to expectation and that is taking out some of the froth from production estimates, including my own,” Mistry said. “Palm oil production will not only enter its seasonal lean phase, it will also enter a new biological low cycle after November.”
‘Bottomed Out’
Soybeans, soybean oil and meal prices have probably bottomed out, Mistry said. The next bout of bearishness may be seen only if the Brazilian crop shapes up well or if the U.S. yields are revised upwards of about 50 bushels per acre, he said. Soybean oil, an alternative to palm in food and fuel uses, tumbled to a five-year low of 31.52 cents a pound in Chicago on Sept. 10. Soybeans reached $9.04 a bushel on Oct. 1, the lowest for a most-active contract since July 2010.
Worldwide food demand for vegetable oils may expand by 3.5 million to 4 million tons in 2014-2015, while biodiesel consumption will increase by only 1 million tons given the loss of new discretionary blending demand following the slump in energy prices, Mistry said.
This “is a good time to buy plantation and processing company equities,” Mistry said today and listed Wilmar International Ltd. (WIL) and Sime Darby Bhd. (SIME) as his top picks. “In fact, with my forecast of improved prices for 2015, the timing could not be better. Downside can now come only from massive South American crops or from contra-cyclical jump in crude palm oil production or from a major world economic crisis.”
Futures may climb to 2,500 ringgit ($765) a metric ton, a level last seen in June, Mistry said, abandoning forecast for a slump to 1,900 ringgit first made on Sept. 15. Palm oil may trade in a range of 2,100 ringgit to 2,300 ringgit in the next several weeks, he said in remarks prepared for a conference in Kuala Lumpur. Prices settled at 2,263 ringgit on Bursa Malaysia Derivatives today, the highest at close since Aug. 4
Palm, used in everything from noodles to biofuels entered a bear market in July as expanding supplies from Indonesia and Malaysia and forecasts for a record U.S. soybean production widened a glut in cooking oils. That’s helped push global food costs to the lowest level since 2010. Reserves may peak by end October and decline through the first half of 2015, Mistry said.
“I believe the worst is over for oilseed farmers and plantations,” said Mistry, who’s traded palm oil for more than three decades. “After 10 December, I expect futures to rise steadily as production declines begin to bite and stocks decline. However, given the current macro economic outlook, I do not expect a bull market.”
Palm oil closed at 1,929 ringgit on Aug. 29, the lowest settlement price since March 2009. A close at or above 2,315 ringgit would be a 20 percent advance, meeting the common definition of a bull market. Futures lost 15 percent this year.
Drought Impact
Reserves in Malaysia climbed to 2.09 million tons in September, the highest since March 2013, its palm oil board said this month, while Indonesia’s stockpiles dropped to 2.2 million tons from 2.5 million tons in August, according to a Bloomberg survey. Malaysia produced an all-time high of 2.03 million tons in August, board data show.
While Malaysian production prospects for October remains good, it may have peaked in August and the lagged impact of a six-week long dry period in February-March may trim output by about 300,000 tons this year, Mistry said. The country may produce between 19.6 million tons and 19.8 million tons this year, while Indonesian output may reach 30 million tons at best, he said, cutting his earlier forecasts for as much as 20 million tons and more than 30.5 million tons respectively.
“Palm oil production is not performing to expectation and that is taking out some of the froth from production estimates, including my own,” Mistry said. “Palm oil production will not only enter its seasonal lean phase, it will also enter a new biological low cycle after November.”
‘Bottomed Out’
Soybeans, soybean oil and meal prices have probably bottomed out, Mistry said. The next bout of bearishness may be seen only if the Brazilian crop shapes up well or if the U.S. yields are revised upwards of about 50 bushels per acre, he said. Soybean oil, an alternative to palm in food and fuel uses, tumbled to a five-year low of 31.52 cents a pound in Chicago on Sept. 10. Soybeans reached $9.04 a bushel on Oct. 1, the lowest for a most-active contract since July 2010.
Worldwide food demand for vegetable oils may expand by 3.5 million to 4 million tons in 2014-2015, while biodiesel consumption will increase by only 1 million tons given the loss of new discretionary blending demand following the slump in energy prices, Mistry said.
This “is a good time to buy plantation and processing company equities,” Mistry said today and listed Wilmar International Ltd. (WIL) and Sime Darby Bhd. (SIME) as his top picks. “In fact, with my forecast of improved prices for 2015, the timing could not be better. Downside can now come only from massive South American crops or from contra-cyclical jump in crude palm oil production or from a major world economic crisis.”