A bear market in palm is poised to deepen in 2013 as the most-used cooking oil slumps to less than 2,000 ringgit ($644) a metric ton on increased global supplies of vegetable oils, according to Dorab Mistry.
Futures on the Bursa Malaysia Derivatives will trade from 2,300 ringgit to 2,500 ringgit through April as stockpiles drop, the director at Godrej International Ltd. told a conference in Kuala Lumpur today. From mid-April, prices will tumble to 2,200 ringgit or less as soybean supplies expand, then slump below 2,000 ringgit in about July or August as palm harvests start to climb, Mistry said. The most-active price traded unchanged at 2,400 ringgit a ton at 5:29 p.m. in Kuala Lumpur.
Mistry’s outlook raises the prospect that the oil will fall for three years, helping to reduce global food costs. Palm declined 23 percent last year on record supplies and stockpiles. U.S. Department of Agriculture Chief Economist Joe Glauber forecasts soybeans, which can be crushed to yield an alternative, will slump as growers plant a record crop after last year’s weather-driven disruptions lifted prices to an all-time high.
“July, August will be a critical period for the market,” Mistry told the annual Palm and Lauric Oils Conference & Exhibition. Prices of crude palm oil, known as CPO, “may finally break down, just as the low cycle is ending and the market looks to rapidly expanding CPO production,” he said.
Palm lost 1.6 percent this year to yesterday’s close as stockpiles in Malaysia, the largest producer after Indonesia, held near the highest ever. A third year of losses would be the worst run since at least 1996. Prices of the commodity used in foods and fuels haven’t traded below 2,000 ringgit since 2009.
Mistry, who earned the nickname Mr. Titanic after he correctly compared vegetable oil prices to the ill-fated liner in 1998, told Bloomberg last month that the outlook for palm is bearish. At last year’s conference, Mistry had said prices would rally to 4,000 ringgit by June. That forecast proved too optimistic as biofuel demand fell, Mistry told delegates today.
“As stocks rise in the second half, it’s bound to be bearish,” said Imran Afzal, director of marketing at Nimir Industrial Chemicals Ltd., an oleochemicals company in Lahore, Pakistan, which imports about 20,000 tons of refined palm olein a year. While Mistry’s forecast was wrong last year, “it seems like a bearish year,” said Afzal, who attended the conference.
Malaysia may produce 19.5 million tons to 19.7 million tons this year, Mistry said. That’s more than the 18.9 million tons seen by the nation’s palm board. Indonesian output may top 30.5 million tons this year from 28 million tons in 2012, he said. Stockpiles in Indonesia are close to 5 million tons, he said.
“As prices decline below 2,000 ringgit, plantations will begin to reduce fertilizer usage and harvest rounds will get longer,” he said. Prices wouldn’t drop to less than 1,800 ringgit unless Brent crude declines to $80 per barrel, he said.
Mistry’s price forecast contrasts with the outlook from Standard Chartered Plc, which said in a Feb. 5 report that palm may bottom in the second quarter, then rally to 2,750 ringgit in the third quarter and 2,900 ringgit in the final three months. Faster economic growth in China and India, the largest buyers, will boost demand, according to analyst Abah Ofon.
Derom Bangun, chairman of the palm board in Indonesia, said in a Feb. 28 interview that he’s bullish about palm, forecasting that inventories in Indonesia may drop as a significant increase in demand outstrips even record supplies. Reserves at the end of last year were 2.5 million tons, Bangun said.
Global food costs tracked by the Rome-based Food & Agriculture Organization fell 0.5 percent last year even as soybeans and corn rallied to records in Chicago as drought in the U.S. hurt supplies. The USDA’s Glauber said last month that soy and corn will fall as farmers ramp up acreage.
This year is going to be “the year of the strong supply response,” Mistry said. Palm prices may come under pressure in mid-April as soy supplies from Brazil and Argentina increase and there’s greater clarity on U.S. farmers’ planting plans, he said. A USDA report on U.S. crop estimates in August, just as palm supply typically picks up, may prove to be a watershed, he said.
U.S. farmers will boost soybean planting this year, taking production to an all-time high of 3.4 billion bushels and doubling the country’s inventories by Aug. 31, 2014 to 250 million bushels, the USDA said on Feb. 22. Soybeans, which peaked at $17.89 a bushel last September, traded at $14.655.
The profitability of palm plantations in the past five years led to more acreage in Thailand, Central America, Colombia and parts of Africa, Mistry said. Together these regions will deliver an extra 700,000 tons this year, contributing to global production growth of 3.9 million tons in 2013, he said. World demand may also expand 3.9 million tons, he said.
“Inefficient plantations produce CPO at an all-in cost of about 1,500 ringgit,” Mistry said. “So the good news is that in this bear market, the price of CPO will guarantee even inefficient plantations a reasonable profit. At no stage do I expect plantations to suffer losses.”