A bear market in palm is poised to deepen in 2013 as the most-used cooking oil slumps to less than RM2,000 a metric tonne on increased global supplies of vegetable oils, according to Dorab Mistry.
Futures on the Bursa Malaysia Derivatives will trade from RM2,300 to RM2,500 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 RM2,200 or less as soybean supplies expand, then slump below RM2,000 in about July or August as palm harvests start to climb, Mistry said. The most-active price traded 0.1 per cent lower at RM2,398 a tonne at 3:51pm 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 per cent last year on record supplies and stockpiles. US 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 (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 per cent 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 RM2,000 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 RM4,000 by June. That forecast proved too optimistic as biofuel demand fell, Mistry told delegates today.
"As prices decline below RM2,000, plantations will begin to reduce fertiliser usage and harvest rounds will get longer," he said. Prices wouldn’t drop to less than RM1,800 unless Brent crude declines to US$80 per barrel, he said.
Malaysia may produce 19.5 million tonnes to 19.7 million tonnes this year, Mistry said. That’s more than the 18.9 million tonnes seen by the nation’s palm board. Indonesian output may top 30.5 million tonnes this year from 28 million tonnes in 2012, he said. Stockpiles in Indonesia are close to 5 million tonnes, he said.
Mistry’s price forecast contrasts with the outlook from Standard Chartered Plc, which said in a February 5 report that palm may bottom in the second quarter, then rally to RM2,750 in the third
quarter and RM2,900 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 February 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 tonnes, Bangun said.
Global food costs tracked by the Rome-based Food & Agriculture Organisation fell 0.5 per cent last year even as soybeans and corn rallied to records in Chicago as drought in the US 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 US farmers’ planting plans, he said. A USDA report on US crop estimates in August, just as palm supply typically picks up, may prove to be a watershed, he said.
US 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 August 31, 2014 to 250 million bushels, the USDA said on February 22. Soybeans, which peaked at US$17.89 a bushel last September, traded at US$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 tonnes this year, contributing to global production growth of 3.9 million tonnes in 2013, he said. World demand may also expand 3.9 million tonnes, he said.
"Inefficient plantations produce CPO at an all-in cost of about RM1,500,” 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."-- Bloomberg