Palm Oil
Recent news from the Palm Oil industry

Excerpt of Interesting article by Palm Oil trader Dorab Mistry via Palm Oil HQ

I have had a very good run over the last 30 months with each of my crude palm oil price forecasts coming true. The last one made 90 days ago for palm oil prices to reach 4000 ringgits by the end of June very nearly verified but missed its target narrowly. 

However, I must confess that my medium term forecast for CPO prices to reach 4500 Ringgits by February 2009 was over-optimistic and that I got the market wrong. The only way we can get to 4500 Ringgits by February 2009 is if we immediately run into an El Nino situation or if Nymex WTI crude oil prices flare up to beyond US$ 150 per barrel or if the Ringgit collapses. Since neither of these possibilities is very likely, 

I must say today that my forecast for CPO to reach 4500 Ringgits by February 2009 stands abandoned. At this point I would also like to congratulate my erudite and distinguished friend Dr James Fry of LMC International in Oxford who correctly predicted the sharp drop in vegetable oil prices. The case for attending conferences and listening to analysts with differing opinions has never been stronger. The importance of biofuel demand will become obvious more and more as this market progresses over the next several months. I shall first make some remarks about the happenings in the market during the last 90 days. 

The lull before the storm 
During June, the level of transactions in our market dropped sharply. It turned out to be the lull before the storm! Our market has been affected by the big macro factors such as: 

The turn in the fortunes of the US Dollar, the decline in the price of energy, the dramatic change in sentiment towards energy, the deteriorating outlook for economic growth in the G8 countries as well as in the BRIC economies and 

Finally, the approach of the hedge fund community towards commodities. Those of you who attended or read my paper at POC 2008 on 27th February in KL will recall I had highlighted the role of funds and particularly the role of Index Funds in boosting commodity prices. 

Signs of Demand Destruction 
During the month of June, we could discern signs of “Demand Destruction “as a result of high prices. I believe the strong price rises of the first quarter of 2008 finally began to meet resistance in the second quarter and got reflected in the volume of business transactions during the month of June. We saw strong evidence of this in the case of sunflower oil and soya oil. The palm market was the quickest to take note and palm soon sank to a wide discount to its competitor and that has kept palm export volumes at a high level. 

Almost Ideal Weather 
Overall in 2008, after the second half of June, we have been blessed with almost ideal weather in all parts of the world. For the first time in recent years, my survey of growing conditions in the 10 major regions of the world did not give me a single cause for concern. The problems of wet conditions in the USA got resolved in the month of June itself. As history has taught us, problems in the early part of the season are the least destructive. Problems in the latter part of the season are the most destructive. 

We have seen crops get bigger as the northern hemisphere growing season has progressed. We have been most pleasantly surprised by yields in the EU and the size of expansion in Ukraine and in SW Russia. Above all, the expansion has come in high oil bearing seeds – rapeseed and sunseed. 

Palm production has also benefitted from an extension of the High Cycle. My earlier estimate was that the High Cycle would come to an end anytime between June and September this year. It appears that the cycle will stretch to the very end of this window and perhaps even stretch to October and November. 

Estimates of CPO production in Malaysia for calendar year 2008 have been revised to 17.4 million tonnes and I shall not be surprised if this estimate is comfortably exceeded. Similarly Indonesian CPO production is likely to comfortably exceed 19 million tonnes. I am told that very generous use of fertilisers, given the high prices of CPO, has done its job together with almost ideal weather. 

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