Cooking oils prices will extend a rally as rising global demand exceeds supplies curbed by drought and heavy rains, pushing palm oil to 3,600 ringgit a ton this month, according to Dorab Mistry, director of Godrej International Ltd.
“The period of greatest tightness will be between February and May 2011 and we need prices to rise now in order to rein in demand and to stimulate plantings,” Mistry, who correctly predicted in March that prices would exceed 3,000 ringgit ($953) a ton after June, said at a conference in Bali today.
Heavy rains caused by a La Nina weather event -- “one of the strongest in decades,” according to Mistry -- have reduced oil-palm yields in Indonesia and Malaysia, the largest producers. La Nina has also caused drought that curbed South American planting of soybeans, threatening global edible oil supplies and driving prices higher.
“It must affect crops in South America,” said Mistry, who has traded vegetables oils for three decades. “The present indications are that we shall lose at least 5 million tons of soybeans. Most analysts underestimated the effects of the El Nino of 2009 and appear to be doing the same with La Nina.”
Palm oil futures in Malaysia have rallied 32 percent this year, climbing yesterday to 3,500 ringgit on the Malaysia Derivatives Exchange, the highest level since July 2008, and may reach 3,600 ringgit this month, he said. Soybean oil in Chicago has jumped 29 percent this year, reaching a 27-month high of 55.43 cents a pound on Nov. 12. The contract for January delivery traded at 53 cents at 10:10 a.m. in Singapore.
Oil-palm yields typically decline in the first half of the year, while stockpiles of soybeans, used to make soybean oil, dwindle between the U.S. and South American harvests. Brazil and Argentina, which start harvesting soybeans in March, are the largest producers after the U.S.
Demand for edible oils will exceed supply for a third straight year, increasing by 4.5 million tons as supply expands 3.5 million tons, Mistry said.
Soybean imports by China, the world’s biggest buyer, may rise 38 percent in the October-to-December period from a year ago, state-owned researcher Grain.gov.cn, a division of the China National Grain & Oils Information Center, said on Nov. 26. Full-year imports may jump 27 percent to more than 54 million tons, it said.
The market is “focused on Chinese monthly imports of beans,” Mistry said. “If the Chinese government releases State Reserves and they skip one month’s imports, it will have a bearish impact on prices in the short term.”
China may import as much as 6.1 million tons of palm oil in the 2010-2011 year, from 5.9 million tons the previous year, if the country decides to replenish rapeseed stockpiles, Jennifer Yuan, a researcher at Cofco Ltd., China’s largest grains trader, said at the Bali conference today.
Soybean oil prices will also climb partly “because too much incremental demand from sunflower oil and rapeseed oil consumers is migrating in its direction,” Mistry said.
Sunflower oil will trade at a premium of at least $200 a ton over soybean oil, he said, lifting last month’s premium forecast from $150. Rapeseed oil will be as much as $150 a ton more expensive, he said.
Global supplies of soybean oil will climb by 1.6 million tons in the year ending September 2011, Mistry said, reducing his November forecast for an increase of 1.8 million tons and his September forecast of 2.1 million tons.
Godrej, one of India’s biggest buyers of cooking oil, this year acquired PT Megasari Makmur, a grower in Indonesia.