Palm oil may extend its advance in April to the highest level since 2012 after dry weather in Southeast Asia hurt crops and as El Nino looms later this year, said Dorab Mistry, director at Godrej International Ltd.
Prices may reach 3,000 ringgit ($907) a metric ton once there is confirmation that the dryness cut production and an El Nino is developing, said Mistry, reiterating a forecast on March 5. Consumers may step up imports from April after draining stockpiles because of high prices, he said. His prediction signals a 9 percent increase from prices now.
Futures climbed to an 18-month high of 2,916 ringgit on March 11 on concern production of cooking oils would drop as dry weather from Southeast Asia to South America withered crops. Prices lost 5.7 percent since then as rains fell in Indonesia and Malaysia, the top producers. While it remains to be seen how the rains perform, there is increasing confirmation that an El Nino will develop from June to July onwards, he said.
“Current price levels of crude palm oil futures are about right and prices do not need to go lower,” Mistry said in remarks prepared for a Beijing conference today. El Nino “will affect rainfall in a vast area of Asia. The southwest monsoon in India is likely to be impacted.” This is a “powerful bullish factor” likely to start about three months from now, he said.
Futures dropped 0.8 percent to 2,750 ringgit on the Bursa Malaysia Derivatives by the midday break in Kuala Lumpur today. Mistry in November correctly forecast palm oil would trade from 2,600 ringgit to 2,900 ringgit through March.
Agricultural crops from coffee to wheat and corn are among the biggest gainers on the S&P GSCI gauge of 24 commodities this year on concern cold weather and drought in the U.S. and dryness in Brazil harmed crops. While vegetable oil, oilseed and meal markets are undergoing a “small correction,” information on planting intentions and growing conditions in the next four to six weeks will determine prices, said Mistry.
There’s a 52 percent chance that the Pacific Ocean will warm enough to trigger an El Nino late this summer or in early fall, Michelle L’Heureux, a climate scientist at the Climate Prediction Center in College Park, Maryland, said March 6. The El Nino pattern has a 75 percent probability of developing around July, according to Donald Keeney, senior agricultural meteorologist at MDA Weather Services.
Palm may rise to 3,500 ringgit later in the year should El Nino hurt output, said Mistry. If the event doesn’t occur, futures may begin to fall after June and trade from 2,900 ringgit to 2,600 ringgit for the rest of the year, he said.
Production estimates for Malaysia and Indonesia in 2014 may be reduced in June, said Mistry, who’s traded vegetable oils for more than three decades. He predicted in November output of 19.5 million tons to 19.7 million tons from Malaysia and 30.5 million tons from Indonesia. The two countries together produce about 86 percent of world supplies.
Indonesia’s biodiesel mandate will only be partially serviced in the year ending Sept. 30, leading to a 1 million ton increase in domestic palm biofuel consumption, said Mistry. Southeast Asia’s biggest economy increased the blending rate to reduce import costs and narrow the current-account deficit.
Food demand for palm, used in everything from noodles to candies, has lagged in the past few weeks due to its narrowing discount to soybean oil and sunflower seed oil, said Mistry.
“We have seen sun oil take a big chunk of demand from countries such as India, Egypt and Iraq,” he said. “This has created less demand for soy oil and also impacted palm oil.” Total Indian vegetable oil stocks fell from almost 2 million tons to less than 1.2 million and are nearing “very tight” levels, so India will need to step up April imports, he said.
Palm imports by India, the biggest buyer, will drop 4.4 percent to 7.88 million tons in 2013-2014 from a year earlier as soybean oil purchases rise 42 percent to 1.55 million tons and sun oil imports jump 36 percent to 1.33 million tons, he said. Soybean oil will gradually climb to 47 cents a pound in Chicago, Mistry predicted on March 5. That forecast may only be realized in October as soybean oil demand is weak, he said.
Mistry was speaking at a conference organized by researcher China Cereals & Oils Business Net.