Malaysian Palm Oil Futures Surge Amid Dry Weather Conditions and Decreased Soybean Production
Reports by B-Trams
Malaysian palm oil futures witnessed a remarkable surge for the fourth consecutive day, with a significant 11% increase for the week. The rise in prices can be attributed to the adverse effects of dry weather on palm and U.S. soybean production.
Palm Oil Contracts Reach New Highs
The benchmark palm oil contract for September delivery on the Bursa Malaysia Derivatives Exchange soared by 234 ringgit, equivalent to 6.67%, reaching a closing value of 3,742 ringgit ($811.54) per metric ton. This price point marked the highest level since May 9.
Water Stress Affects Palm Oil Estates
Sabah, the largest palm oil-producing state in Malaysia, is facing water stress due to the early signs of El Nino. This has led to reduced yields and exacerbated the impact of under-fertilization and labor shortages experienced over the past three years. Read More….
Dry Weather Challenges U.S. Soybean Harvest
In the United States, a prolonged period of dry weather following the planting season has negatively affected crops across the Midwest. This development has raised concerns about the anticipated record soybean harvest falling short of expectations.
Also Read :US Agricultural Report
Impact on Related Oils and Global Market
Price movements in related oils significantly influence the palm oil market, as they all compete for a share in the global vegetable oils market. Consequently, soyoil prices on the Chicago Board of Trade experienced a 1.4% increase. Similarly, Dalian’s most-active soyoil contract witnessed a notable surge of 5%, while its palm oil contract gained 6%.
Factors Supporting Palm Oil
The rally in palm oil prices to multiple factors. Notably, the rally was supported by a surge in South American Soy oil FOB markets, as well as a bullish undercurrent in European rapeseed oil and sunflower oil cash markets.
Boost from Indian Palm Oil Purchases
Bullish palm oil purchases from India, the top buyer, during the current week provided much-needed support for palm oil prices. Additionally, India’s recent sharp reduction in base import prices of palm oil has given it an import duty advantage.
Weather Outlook and Drought Conditions
The weather outlook indicates light showers with poor coverage expected for the last week of June. Both European and American weather forecast models are showing drier conditions over the next 10 days. Furthermore, the National Weather Service’s recent forecast expanded the area of hot temperatures and reduced rainfall in the Corn Belt. Dry conditions are expected to persist in Ukraine and central Russia, while northern Europe may experience increased chances of rain, albeit insufficient to compensate for their rainfall deficit.
Yesterday’s updated drought maps revealed that nearly 100% of the I States are now in a certified drought. These states collectively contributed 42% of US corn and 37% of soybeans in 2022.
Soybean Crush and Soy Oil Stocks
The National Oilseed Processors Association (NOPA) reported a soybean crush of 177.915 million bushels in May. This figure exceeded market expectations by over 2 million bushels and represents the largest May crush ever recorded. Additionally, soy oil stocks were 75 million pounds (3.8%) lower than anticipated, reaching 1.872 billion pounds.
U.S. Retail Sales and Import Tariffs
U.S. retail sales in May surpassed expectations, with sales slowing at gas stations and retailers but increasing for building materials and vehicle purchases.
India has reduced its import tariffs on refined soybean and sunflower oil. On Thursday, Malaysian palm oil prices observed a 2% increase. The weekly export sales report from the U.S. Department of Agriculture (USDA) showed that the U.S. sold 2,000 tons of soybean oil last week, marking one of the most substantial weekly sales of soybean oil this year. Over the past 12 months, biofuel producers have consistently paid higher prices for U.S. soyoil compared to foreign buyers. While corn and soybean export sales were not optimal, they exhibited relative strength compared to the previous four weeks.
In conclusion, the surge in Malaysian palm oil futures can be attributed to the adverse effects of dry weather conditions on palm oil production and concerns over decreased soybean production in the United States. The palm oil contracts reached new highs, supported by factors such as water stress in palm oil estates, dry weather affecting the U.S. soybean harvest, and price movements in related oils. Bullish palm oil purchases from India and favorable import duty advantages have also played a role. However, all the above factors effected palm oil prices but if the data of upcoming Malaysian exports are decrease more and production will increase then it may trade in a ranges of 3,200-3,800 Ringgit As already we predicted, but if the data shows bullish sentiments then definitely market will break 3,800 RM level to 4,000 RM and above.