Bumper Soybean Reap May Cap CPO Rebound

Enough supply to meet high demand during Muslim festive season

PETALING JAYA: A bumper soybean harvest in South America may limit a recent rebound in crude palm oil (CPO) prices.

Analysts projected that there will be enough supply in the edible oil market to meet the anticipated increase in demand from big buyers ahead of the Muslim festive period that starts in September.

This, coupled with prediction that palm oil stockpile will bottom out in July as local estates enter into their cyclical peak production period, would probably cap any near-term upside for the golden crop, they said.

“We expect CPO price to remain in consolidation phase in the next three months,’’ MIDF Research analyst Mohammed Kifni said in a report yesterday.

His “neutral” call on CPO was supported by the view that the recent bumper soybean harvest will result in ample edible oil supply coming into the market in the third quarter while local palm oil trees slowly move into seasonal peak production period that usually last until October.

“The potential substitution play into soybean oil may limit the outperformance of CPO price, going forward,’’ Kifni said.

He noted that CPO prices had declined at a slower pace against soybean oil during the first half. This had cut down CPO price discount against soybean oil to 10%, which is narrower than its 5-year historical mean of 19.4%.

“CPO price movement have been and will likely to continue to be influenced by the general trend in commodities, particularly crude oil and soybean oil,’’ he said.

The benchmark CPO futures contract on Bursa Derivatives rose RM13 to RM2,353 a tonne yesterday, extending gains to four days in a row after it hit RM2,270 a tonne – its lowest since November last year.

CPO futures had dropped 12% year-to-date.

A palm oil trader contacted by StarBiz said the market appeared to have discounted “bullish” industry data released by Malaysian Palm Oil Board on Monday.

Official data showed that local palm oil production rose 2.5% to 1.42 million tonnes in June compared with May, but declined 1.8% against the same month last year.

However, strong demand from overseas and lower import volume brought down inventory at home to a 10-month low of 1.45 million tonnes in June.

“Our analysis suggests that palm oil stockpile may bottom in July instead of our earlier prediction of May,’’ CIMB Research said in a report yesterday.

Cumulative six months’ output totalled 7.98 million tonnes, higher than 7.92 million achieved in the same period last year.

The Government had recently cut its 2010 full-year production forecast to 17.8 million tonnes from 18.1 million previously.

The new target translates into a 1.1% increase in output compared with last year.

Meanwhile, CIMB noted that the odds of a freak weather phenomenon known as La Nina happening this year had risen. This unusual weather pattern may result in flooding in the region.

Source: The Star by Izwan Idris

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