Palm Oil Heading for 20-Month Low as Slowdown Cuts Demand (Source: Bloomberg)
Palm oil, used in everything from candy to biofuels, may tumble 9 percent to the lowest level in 20 months as a slowdown in China and Europe curbs demand, according to Dorab Mistry, director at Godrej International Ltd. Futures may slump to as low as 2,700 ringgit ($853) a metric ton from 2,974 ringgit in the absence of fresh stimulus by the U.S. to revive growth, said Mistry, abandoning his forecast for prices to reach 4,000 ringgit. The most-active contract last traded below 2,700 ringgit in October 2010. Futures may rebound to 3,300 ringgit as the decline may stimulate demand, he said at a conference in Mumbai yesterday. Prices have slumped 18 percent since climbing to a 13-month high in April as growth slowed in China, the biggest cooking-oil user, and the debt crisis worsened in Europe. A decline in prices may cut costs for companies such as Nestle SA (NESN), the world’s largest food company, while reducing profits at producers including Sime Darby Bhd (SIME) and Wilmar International Ltd. (WIL)
“The scenario on commodities has darkened considerably in the world at large,” said Mistry, who’s traded palm oil for more than three decades. “The main catalyst as far as palm oil prices are concerned has been the fall in crude oil prices. The logic has been that biodiesel demand is the swing factor and as crude oil falls, biodiesel becomes uncompetitive.” Biodiesel demand this year may see “very little growth” as a drop in oil prices reduces consumption for non-mandatory use, he said. Palm oil’s use in biofuels may expand by only 1 million ton this year, while its demand for food will expand by 2 million tons, he said. Brent crude oil prices have declined 6.4 percent this year, weakening demand for the tropical oil.
Opening Gates
A further decline in crude prices in the absence of stimulus measures from the U.S. “we will see the opening up of the gates for prices to fall further,” said Nagaraj Meda, managing director of TransGraph Consulting Pvt., who has forecast prices for 13 years. Palm oil for delivery in August fell 1 percent to 2,974 ringgit on the Malaysia Derivatives Exchange yesterday. The price reached a 13-month high of 3,628 ringgit on April 10. “On the whole, demand growth has been disappointing,” said Mistry. “The Chinese consumer of vegetable oils has tightened his belt and we have not seen the strong year-on-year rise in consumption as in the past.”
China’s economy will expand 7.9 percent this quarter from a year earlier, the least in three years, based on the median estimate in a Bloomberg survey. That compares with average growth of 10 percent in the last five years. The People’s Bank of China cut interest rates yesterday for the first time since 2008, stepping up efforts to combat a deepening economic slowdown. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective today, it said.
Rupee Decline
India, Asia’s third-largest economy, grew 5.3 percent last quarter, the least since 2003, government data showed last week. Vegetable-oil imports by India, the biggest palm buyer, will gain 9 percent to 9.48 million tons in 2012-2013, Mistry said. “India’s imports of palm so far are well ahead of the previous year. The period of out-performance has come to an end” as a decline in rupee against the dollar increases costs, he said. The rupee, the worst performing currency in Asia this quarter, fell to a record low of 56.515 a dollar on May 31. India imports nearly 55 percent of its annual vegetable oil needs of almost 16 million tons. Crude soybean oil will rebound to about $1,200 a ton free- on-board by the end of this year after falling to $1,000 a ton, Mistry said. Rapeseed oil may trade at a premium to soybean oil even with an expansion in canola output, he said.
Malaysian Deficit
Palm-oil output in Malaysia may decline as much as 900,000 tons from January to July from a year earlier, Mistry said. A rebound is unlikely before August at the earliest, he said. “The decline in seasonal growth is truly staggering and something we have not seen in years,” he said. “Within the first five months of 2012, we have a cumulative deficit of almost 500,000 tonnes.” Production may rebound in the second half, bridging the shortfall, said Choo Yuen May, director-general of the Malaysian Palm Oil Board. Output will reach 19 million tons this year as harvest peaks in the coming months, she said in an interview yesterday. The country produced a record 18.9 million tons in 2011, according to the board. “There is a strong chance of an El Nino phenomenon arising later this year from August onwards,” Mistry said. “The initial effect of this hot and dry weather will be to accelerate the ripening of fresh fruit bunches and give us higher production in the first few months.”
El Nino weather conditions, which can parch Asia and bring cooler weather to the U.S., are likely to develop in the coming months as the Pacific Ocean continues to warm, Australia’s Bureau of Meteorology said on June 5. The oil-palm bears fruit all year, with more output in the second half. Drought, such as the one caused by El Nino in 2010, can hurt yields. “There are now definite signals of an emerging El Nino and if those signals give us an El Nino, prices will recover faster than most people expect,” Mistry said.
Soybeans Head for Longest Winning Streak in a Month on China Buy (Source: Bloomberg)
Soybeans advanced for a fourth day, the longest winning streak since April, as U.S. exporters sold more oilseeds to China and on signs policy makers around the world may take steps to revive the slowing economy. November-delivery soybeans gained as much as 2.1 percent to $13.2625 a bushel on the Chicago Board of Trade and were at $13.24 at 1:39 p.m. in London. Exporters in the U.S., the world’s largest grower and shipper, sold 120,000 metric tons of soybeans to China for delivery in the year ending Aug. 31, the Department of Agriculture said yesterday. The Group of Seven nations agreed to coordinate their response to Europe’s debt crisis. Federal Reserve Vice-Chairman Janet Yellen said the U.S. economy may need additional monetary stimulus. “The export sales report is one reason why prices are up,” Chung Yang Ker, an analyst at Phillip Futures Pte., said by phone from Singapore today. “We’ve also seen the macro- economic environment turning to an optimistic mood.”
China’s purchases reported yesterday add to the 2 million tons in outstanding sales to the Asian nation as of May 24, and the 20.6 million tons that have already been shipped since the marketing year began Sept. 1, 2011, according to USDA data. The country’s corn imports will rise to 7 million tons for the 12 months that began on May 1, up from 5.5 million a year earlier, a unit of the USDA said in a report posted on its website yesterday. China’s production will drop to 192 million tons from 192.78 million a year earlier, it said.
Pro Farmer: After the Bell Soybean Recap (Source: CME)
Soybean bulls again donned their rally caps heading into the close, helping futures to extend gains to 40-plus cents through the January contract. Soymeal and soyoil followed suit and finished with strong gains. Most contracts extended gains slightly in after-hours trade. News China unexpectedly lowered its interest rates, likely freeing up money for importers to buy U.S. commodities, sparked commodity buying interest today.
Soybean Complex Market Recap (Source: CME)
July Soybeans finished up 41 3/4 at 1428, 2 off the high and 44 3/4 up from the low. November Soybeans closed up 42 at 1341 1/4. This was 44 1/2 up from the low and 3 1/4 off the high. July Soymeal closed up 11.7 at 426.3. This was 12.6 up from the low and 2.7 off the high. July Soybean Oil finished up 1.14 at 50.39, 0.01 off the high and 1.42 up from the low. July soybeans were trading near 41 cents higher on the day late in the session with November up near 42 cents. The China interest rate cut, positive outside market forces and questionable weather helped to spark aggressive fund buying which continued for much of the day in spite of a sharp break in gold and a recovery in the US dollar from early lows. Ideas that the weather forecast is a bit more threatening plus an outlook for tightening ending stocks for the supply/demand update next week helped to support strong buying from the trade. Traders see a drop of near 20 million bushels for ending stocks for the 2011/12 season from 210 million last month with many traders looking for a sharper drop. For new crop, traders appear hesitant to revise estimates much lower than last month's 145 million bushel carryout estimate which is already extremely tight. Net weekly export sales for soybeans came in at 220,200 metric tonnes for the current marketing year and 275,000 for the next marketing year for a total of 495,200 which was well below trade expectations. Cumulative old crop sales stand at 101.6% of the USDA forecast versus a 5 year average of 98.3%. Meal sales came in at 75,000 metric tonnes for the current marketing year and 5,200 for the next marketing year for a total of 80,200. Sales of 80,000 metric tonnes are needed each week to reach the USDA forecast. Net oil sales came in at 13,100 metric tonnes for the current marketing year and -5,000 for the next marketing year for a total of 8,100. Cumulative soybean oil sales stand at 82.6% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 71.5%. Sales of 5,000 metric tonnes are needed each week to reach the USDA forecast. The China National Grains and Oils Information Centre believes that soybean imports could top 12 million tonnes for May and June and the group is maintaining their import estimate for the year at 58 million tonnes as compared with the current USDA estimate of 56 million. Strength in meal was again the leader to the upside today with December meal rallying to just shy of the May contract into the close.
VEGOILS-Palm oil extends gains on hopes for stimulus
SINGAPORE, June 7 (Reuters) - Malaysian palm oil futures rose, as investors turned hopeful that the United States could introduce fresh monetary stimulus and European policymakers may rescue ailing Spanish banks.
"The market is playing a waiting game," said a dealer with a foreign commodities brokerage in Malaysia.
Malaysia palm stocks to fall further, support prices -MPOC
MUMBAI, June 7 (Reuters) - Palm oil stocks in Malaysia, the world's second biggest producer, are likely to fall further in the coming months as festival demand cuts into supply, a trade body executive said on Thursday, potentially supporting prices for the edible oil.
Malaysian Palm Oil Council Chairman Lee Yeow Chor said there had been a slew of orders ahead of the Muslim holy month of Ramadan, when fasting in the day is followed by elaborate feasts at night.
India's May oilmeal exports up 8.6 pct yr/yr-trade body
NEW DELHI, June 7 (Reuters) - India's oilmeal exports rose to 351,791 tonnes in May from 323,907 tonnes a year earlier, a leading trade body said on Thursday, with strong gains in overseas sales for minor products such as rice husks and castor seed meal.
Soymeal exports to sanctions-hit Iran rose sharply even though overall soymeal exports fell to 142,588 tonnes in April from 176,819 tonnes a year ago, the Solvent Extractors' Association of India said in a statement.
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