CPO Price Stays Despite Low Corn, Soybean Supply

Price-premium gap between the rival edible oils has narrowed down

PETALING

JAYA: The US forecast of a thin supply of corn and soybean this year

would have a minimal influence on the demand and price of crude palm oil

(CPO).

This was because the price premium that soybean oil commands over palm oil has narrowed down, analysts
said.

Historically,

the price-premium gap between the two rival edible oils was quite wide,

with palm oil has always been the cheaper alternative.

CPO

three-month futures, which have rallied more than 32% last year, showed

lukewarm response to the news from the United States. It advanced only

RM44 to RM3,694 per tonne yesterday.

OSK Research Sdn Bhd analyst Alvin Tai said the price-premium gap that soybean commanded over palm oil
had narrowed to about US$20.

“This

is quite narrow, given the scenario that it reached US$400 in 2008.

Thus, I think there would be minimal impact on CPO prices and demand.

Just look at the market response today where I believe the CPO price did
not move much on the US forecast,” he told StarBiz.

report issued by US Department of Agriculture (USDA) on Wednesday showed

lower estimates for the country’s corn and soybean harvest and

stockpiles due to adverse weather conditions.

Bloomberg

said in a report that inventories of soybean in the United States, the

world’s largest grower and exporter of the commodity, were forecast to

drop to 3.82 million tonnes before this year’s harvest, from an

estimated 4.49 million tonnes last month.

That will cut global

inventories to 58.28 million tonnes before the next northern hemisphere

harvest, down from a 60.1 million tonne estimate last December.

According

to a Rabobank report, the current La Nina weather pattern had

threatened yields with its drier-than-average conditions and loomed as a

major risk to send world soybean stocks-to-use ratio to multi-year lows

and prices to record highs.

“The USDA made little change to the

demand side of the equation despite the rapid pace of soybean exports

where as a result, stocks-to-use for soybeans dropped to 4.2% the lowest

since 1964/1965 heightening the sensitivity of the market to any

further supply-side shocks,” said Rabobank.

As for palm oil, HwangDBS Vickers Research

said data released by the Malaysian Palm Oil Board showed that CPO

production in December 2010 stood at 1.23 million tonnes, reflecting a

15.5% month-on-month drop.

“Compared with the peak figure in October, the volume in December has collapsed by 24.7%, the steepest
seasonal drop since 2002.

“This

could be due to wet weather disrupting harvesting while the yields of

fresh fruit bunches might have fallen due to the laggard impact of

severe drought from January till February 2010.

“We expect the

production in January and Febuary to drop further before recovering from

April onwards,” it said in a recent report.

However, the

research house said the demand remained strong, with exports in December

stood at 1.29 million tonnes, reflecting a 14.6% decrease

month-on-month but a 5% increase year-on-year.

PETALING JAYA: The US forecast of a thin supply of corn and soybean this year
would have a minimal influence on the demand and price of crude palm oil (CPO).

This was because the price premium that soybean oil commands over palm oil has
narrowed down, analysts said.

Historically, the price-premium gap between the two rival edible oils was quite wide,
with palm oil has always been the cheaper alternative.

CPO three-month futures, which have rallied more than 32% last year, showed
lukewarm response to the news from the United States. It advanced only RM44 to
RM3,694 per tonne yesterday.

OSK Research Sdn Bhd analyst Alvin Tai said the price-premium gap that soybean
commanded over palm oil had narrowed to about US$20.

“This is quite narrow, given the scenario that it reached US$400 in 2008. Thus, I
think there would be minimal impact on CPO prices and demand. Just look at the
market response today where I believe the CPO price did not move much on the US
forecast,” he told StarBiz.

A report issued by US Department of Agriculture (USDA) on Wednesday showed

lower estimates for the country's corn and soybean harvest and stockpiles due to
adverse weather conditions.

Bloomberg said in a report that inventories of soybean in the United States, the
world's largest grower and exporter of the commodity, were forecast to drop to 3.82
million tonnes before this year's harvest, from an estimated 4.49 million tonnes last
month.

That will cut global inventories to 58.28 million tonnes before the next northern
hemisphere harvest, down from a 60.1 million tonne estimate last December.

According to a Rabobank report, the current La Nina weather pattern had threatened
yields with its drier-than-average conditions and loomed as a major risk to send
world soybean stocks-to-use ratio to multi-year lows and prices to record highs.

“The USDA made little change to the demand side of the equation despite the rapid
pace of soybean exports where as a result, stocks-to-use for soybeans dropped to
4.2% the lowest since 1964/1965 heightening the sensitivity of the market to any
further supply-side shocks,” said Rabobank.
As for palm oil, HwangDBS Vickers Research said data released by the Malaysian
Palm Oil Board showed that CPO production in December 2010 stood at 1.23 million
tonnes, reflecting a 15.5% month-on-month drop.

“Compared with the peak figure in October, the volume in December has collapsed
by 24.7%, the steepest seasonal drop since 2002.

“This could be due to wet weather disrupting harvesting while the yields of fresh fruit
bunches might have fallen due to the laggard impact of severe drought from January
till February 2010.

“We expect the production in January and Febuary to drop further before recovering
from April onwards,” it said in a recent report.

However, the research house said the demand remained strong, with exports in
December stood at 1.29 million tonnes, reflecting a 14.6% decrease month-on-
month but a 5% increase year-on-year. For latest Bursa Malaysia indices, charts and
other information click here