The Impact of Dry Weather on Malaysian Palm Oil Futures
In This Report We Talk About the Above Contents
- Today Market Updates
- Weather Challenges in Malaysia
- Uncertainties in Ethanol Production
- Indonesia’s Market Influence
- Impact on Soybean Crops
- Interrelatedness of Palm Oil and Other Vegetable Oils
- Market Outlook For Next Week
Today Market Updates
In recent trading sessions, Malaysian palm oil futures experienced a surge of 6%. However, the market has now eased, although concerns regarding dry weather persist, which could have a significant impact on global palm and soybean production. While The benchmark palm oil contract for September delivery on the Bursa Malaysia Derivatives Exchange gained 15 ringgit, or 0.4%, to 3,758 ringgit ($817.91) per metric ton, its highest since May 9.
This Report delves into the current situation, analyzing the potential consequences and exploring the various factors contributing to the market’s performance.
Weather Challenges in Malaysia
Hot and dry weather conditions in Malaysia pose a threat to domestic yield expectations, compounding concerns related to the upcoming El Nino conditions that could hinder the crucial seasonal monsoons required for palm cultivation. The Malaysian Palm Oil Board warns of the adverse effects caused by insufficient rainfall and excessively dry conditions resulting from El Nino, which is anticipated to reduce next year’s production by 1-3 million tonnes.
Uncertainties in Ethanol Production
Moreover, the uncertainty surrounding ethanol production in the United States may further impact the demand for palm oil as a biodiesel feedstock. Droughts across the North American Plains regions have jeopardized soy oil and corn yields. Additionally, the country’s Environmental Protection Agency has delayed the release of biofuel blending volume mandates for 2023-2025. These factors could potentially increase the demand for palm oil as an alternative.
Indonesia’s Market Influence
While concerns over production persist, Indonesia has been exerting pressure on the market by offering cheaper palm olein due to its increased production capacity. The country aims to capture a larger market share, which contributes to the dynamics of the palm oil futures market.
Impact on Soybean Crops
The escalating drought conditions in the U.S. Midwest have also raised concerns about soybean crops. This situation has propelled Chicago soybean futures to reach their highest level in nearly six weeks. The soyoil market on the Chicago Board of Trade was closed on Monday due to a public holiday, further affecting market dynamics.
Interrelatedness of Palm Oil and Other Vegetable Oils
Palm oil prices are influenced by the movements of related oils as they compete for a share in the global vegetable oils market. Therefore, developments in the prices of other oils, such as soybean oil, can impact the performance of palm oil futures.
According to B-Trams research team, the palm oil futures contract may continue to rally, possibly reaching resistance levels of 3,830-3,850 ringgit per metric ton during the current week. Support levels are expected to be around 3,680-3,700 ringgit per metric ton.
Dry weather conditions and their potential impact on global palm and soybean production have led to fluctuations in the Malaysian palm oil futures market. The scarcity of rainfall in Malaysia, coupled with the uncertainties surrounding ethanol production in the United States, pose significant challenges for the palm oil industry. Meanwhile, Indonesia’s market influence and the worsening drought in the U.S. Midwest contribute to the complexity of the situation. Market participants will continue to monitor these factors closely, as they will shape the future performance of palm oil futures.