Palm, the world’s most-used cooking oil, may slump to the lowest level since 2009 by January as global supplies of edible oils expand and crude oil weakens, said Dorab Mistry, director at Godrej International Ltd.
Futures will probably retreat to 2,000 ringgit ($629) a metric ton in Kuala Lumpur if Brazil and Argentina, the largest soybean growers after the U.S., harvest bigger crops and Brent crude drops below $100 a barrel, Mistry told an industry conference in Mumbai today. Prices will not fall below 2,200 ringgit in the next few weeks and will trade between 2,200 and 2,400 ringgit, he said.
Palm, used in everything from candy to detergents, is poised for a third annual loss, the worst run since at least 1996, according to data compiled by Bloomberg. Lower cooking oil prices may help extend a drop in global food costs measured by the United Nations to the lowest in more than a year. World palm stockpiles will surge 17 percent to a record 9.2 million tons by the end of 2013-2014 as demand expands 4.5 percent, the least in 12 years, the U.S. Department of Agriculture estimates.
“The fundamentals of the oilseed and vegetable oils complex are clearly bearish,” said Mistry, who has traded vegetable oils for more than three decades. “We cannot expect a bull market in vegetable oil prices any time in 2013-2014 unless we have adverse weather.”
Palm for delivery in December closed at a five-week low of 2,300 ringgit on Bursa Malaysia Derivatives Sept. 20. Futures had the biggest monthly gain in August since December 2010 as crude rose to a two-year high, a weak ringgit boosted Malaysian exports and hot, dry weather hurt the U.S. soybean crop.
Global vegetable oil supplies will increase by 7.1 million tons in the marketing year beginning Oct. 1, more than the 5.5 million-ton expansion in demand for food and fuel, said Mistry. High crude prices may boost demand for vegetable oil as biofuel by as much as 2.5 million tons, while demand for food will increase by 3 million tons, he said.
“Despite the expansion of demand due to biofuels I do not expect a bull market,” said Mistry. “As a result of the continued high prices of Brent crude oil and the spread, I believe crude palm oil futures will not trade below 2,200 ringgit over the next few weeks despite rising production.”
Stockpiles in Malaysia and Indonesia will begin to rise from September and increase for the next several months, and palm will face more competition from products such as sunflower and soybean oils, said Mistry.
The high output cycle, which started this month, may last until April, said Mistry. He cut forecasts for Malaysian and Indonesian production for 2013 to 19.2 million tons and 29.5 million tons. In March, Mistry estimated Malaysian production at 19.5 million tons to 19.7 million tons and that Indonesian output would top 30.5 million tons.
“The world’s vegetable oil consumers can feel confident of expanding supply of palm in the years ahead,” said Mistry, citing increased planting in Indonesia. “We should expect significant uplift in Indonesian production from 2017 onwards.”
Even if palm oil declines, soybean oil is not expected to weaken significantly, said Mistry. Soybean oil, a substitute in food and fuel uses, was at a premium of about $210 a ton over palm on Sept. 20, compared with an average of $299 in the past year, data compiled by Bloomberg show.
Global production of 10 major oilseeds, including soybeans, rapeseed and sunflower seed, will be 484.9 million tons in the 2013-2014 season, up 4.5 percent from a year earlier, according to Hamburg-based researcher Oil World. Supplies will be “more than sufficient to satisfy the prospective demand from the global crushing industry,” it said Sept. 17.
Soybean prices on the Chicago Board of Trade rallied as much as 21 percent since Aug. 7 as prospects deteriorated for the U.S. harvest, which usually starts in September. Futures closed at a four-week low of $13.1525 a bushel on Sept. 20.
“If South America plantings get off to a good start and rainfall is near normal, I expect the soya market to decline sharply from current levels around Christmas time,” said Mistry. “We must also expect harvest lows between now and November in the U.S. So far in the soya world, traders have been focusing on supply and are not looking at demand.”
Production of sunflower seed in Ukraine, Russia and Eastern Europe exceeded expectations, pushing sunflower oil to a discount to soybean oil which will continue until June, said Mistry. That discount will enable sunflower oil to grab market share, he said. Rapeseed oil will trade at a considerably narrower premium to soybean oil, he said.
India’s imports of vegetable oils may increase 3.8 percent to 11 million tons in the season starting Nov. 1, from 10.6 million tons estimated for this season, said Mistry. Consumption will gain 4.9 percent to 18.1 million tons, he said.
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