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News Flash: June 5, 2014


Vegetable oil may cool on excess supply

The global vegetable oil market is at a crossroads. The short-term fundamentals are weak, with consumption lagging behind production and stocks rising. Prices apparently have no upside in the next two to three quarters because of an anticipated rebound in the production of palm oil as well as large crops of soybeans, rapeseed and sunflower seeds. However, the key to market direction in 2015 will be El Nino, the weather phenomenon that triggers acute dry conditions in South-East Asia and lower-than-normal monsoon rains in India. Palm and other oils are currently fighting for market share, as production of all oils has been rising. Palm oil is usually quoted at a price discount to soft oils and is therefore able to garner a bigger share of trade. However, the usual average differential of $150 a tonne between palm and soft oils has currently narrowed to about $80/t with abundant availability of the latter. This narrow price spread means consumers have a choice and substitution is happening at the expense of palm oil. Going forward, the biggest downside risk to palm prices is a potentially bumper crop of soybeans in the US in the coming months, over and above large supplies currently available from Brazil and Argentina. With demand conditions remaining weak, an aggressive build-up of palm oil inventories at the origins — Indonesia and Malaysia — may be nearly unavoidable. To regain market share, palm oil prices will have to be adjusted down relative to other oils. Crude palm oil is currently traded at Ringgit Malaysia 2,500 a tonne and has the potential to fall by 5-6 % in the next quarter. At the same time, the biggest upside risk to palm oil prices is El Nino. The weather phenomenon has not struck yet; but experts assert it could sometime in the second half of this year. Again, the timing and intensity of El Nino will determine palm oil production and growth prospects for the next year. Interestingly, when El Nino strikes South-East Asia, North America enjoys excellent weather conditions that boost spring-planted crops. In addition to weather, market experts also are watching India. Import volumes have clearly slowed down in recent months. The first six months of oil year (November 2013 to April 2014) saw arrivals aggregate to 50.7 lakh tonnes versus 51.4 lakh tonnes during the corresponding period in the previous year. The share of palm group of oils has declined to 37 lakh tonnes versus 43 lakh tonnes in the previous year while the share of soft oils (predominantly, soy and sunflower) has increased sharply. It is highly likely that Indian importers are waiting for further price correction in palm oil before making large-scale purchase commitments to meet the festival demand that should kick in by August. Softer palm oil prices and a firming rupee (making

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imports less expensive) make up a good mix for Indian consumers. The onset and progress of the south-west monsoon will also have a bearing on edible oil prices. Hindu Business Line


Corn Falls to 13-Week Low on Outlook for Record U.S. Crop

Corn futures fell to a 13-week low on mounting speculation that output will rise to an all-time high in the U.S. U.S. farmers planted 95 % of the corn crop as of June 1 with 76 % of plants in good or excellent condition, the highest for this period since 2010, the government reported. Additionally, a favorable mix of rain and warm temperatures was forecast for the next two weeks, making conditions even more favorable. “Corn is off to strong start, and that is increasing the potential for a record crop,” Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago, said in an interview. “The forecast signals adequate moisture for continued strong early development.” Corn futures for July delivery fell 1.6% to close at $4.5825 a bushel on Tuesday at the Chicago Board of Trade. Earlier, the price touched $4.56, the lowest for a most-active contract since Feb. 28. Last month, the grain tumbled 10 %, the most in a year, as planting accelerated after fieldwork was delayed by rain and cold temperatures. Bloomberg


Palm Oil Slide Puts Brent Crude-Related Support in Sight

Palm oil prices have dropped as much as 6% in the last two weeks, tracking a tumble by soybean oil, but further reductions could see the tropic oil gaining support from an unlikely source, crude oil. Palm oil has followed its rival soybean oil on a downward spiral. Soy has slipped as much as 8%, pushed down by good weather in the U.S. which has spurred crop planting. About 78% of the U.S. soybean crop was seeded as of Sunday, beating the prior five-year average of 70%, the USDA says. Another reason for palm oil’s fall were over-pessimistic forecasts about a spell of dry weather early this year hurting output in Indonesia and Malaysia, who account for 85% of global palm oil output. These turned out to be unwarranted as production was better than expected, and in some cases higher than year-earlier levels, said Morgan Stanley analyst Charles Spencer, commenting that “the drought seen in February and March didn’t seem to have much of an impact.” Global benchmark crude palm oil futures on the Bursa Malaysia fell to the seven-and-a-half month low of 2,375 ringgit ($735) a metric ton on Tuesday, marking a 19% decline from a 18-month high hit in March at the height of the drought. On Wednesday afternoon, they were trading around 2,400 ringgit a ton. Higher demand is expected ahead of the Islamic month of Ramadan, which starts at the end of June; but so far there has not been an increase in demand like many have expected. Cargo surveyors report that Malaysia’s palm oil exports slowed over the course of May, while in Indonesia, they fell 23% in April from March, contributing to a surprise trade deficit of $2 billion for the month. There are supportive factors on the horizon, as both Indonesia and Malaysia are pushing ahead with plans to divert more palm oil for conversion into biodiesel and reduce the burden of maintaining subsidies on transport fuels gasoline and diesel. Morgan Stanley’s Spencer said physical palm oil prices could decline another $50 a ton before finding some support when they reach same level as the ICE-Brent crude-oil price, which would improve the economics of using palm oil to make biodiesel. Palm oil costs around $850 a ton at the port of Rotterdam, including cargo, insurance and freight while Brent crude has been trading at close to $108 a barrel, or $810 a ton. “Since the mid-1990s, there have been very few periods when CPO prices have traded below Brent,” he said. Additionally, there is El Nino. Weather forecasters say it is probable that it will start affecting the climate, and global agricultural output, from August, although plantation companies and analysts suggest that lower palm oil yields won’t be at their worst until next year. Wall Street Journal


Sunflower oil demand adds support to old/new crop prices

Ever since the USDA Planting Intention Report came out in late March, things have looked promising for the vegetable

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oil market, including sunflower oil. From October 2013 to March 2014 sunflower oil exports are up more than 2,000 metric tons (MT) – from 10,681 MT last year to 12,717 MT this year, according to the National Sunflower Association. Concerns are growing about a potential El Niño have provided support to oil values lately. Depending on the intensity of the El Niño, there can be a negative effect on palm production and could drive palm oil higher, lifting vegetable oil prices. Looking at other vegetable oil crops, Informa’s latest estimate of U.S. soybean acres in 2014 is approximately 82.1 million. This compares to the USDA estimate of 81.5 million acres and 76.5 million that was planted last year. The higher estimate is due in part to planting delays across the upper Midwest. While the weather and planting progress reports will continue to be the main market drivers in the near term, it has not affected sunflower planting decisions to date. Producers considering sunflowers still have plenty of time to get them planted in the normal timeframe to utilize the excess moisture in the soil and achieve maximum yields. Farm & Ranch Guide


Soybean Output Seen Climbing Next Season as Area Expands

Global production of soybeans may climb to a record next season as farmers expand planting especially in the Northern Hemisphere, Oil World has reported. World production may be 301.2 million metric tons in the 2014-15 season, 6.1% higher than the prior marketing year. Total harvested area worldwide may reach an all-time high of 118.5 million hectares (292.8 million acres), about 4% more than the year earlier, according to the report. “Competitive prices and price relationships are apparently resulting in record plantings in the Northern Hemisphere this spring.” “With the assumption of normal weather from now on, record soybean crops are likely to be harvested in the U.S.A., Canada, Russia, Ukraine and the European Union” the report read. Soybean futures on the Chicago Board of Trade, are up 15 % this year as traders weighed shrinking stockpiles in the U.S., against prospects for increasing global supplies. American output in the 2014-15 season, which starts on Sept. 1, will total 98 million tons, slightly less than the USDA estimate of 98.93 million tons. Higher output in the Northern Hemisphere may spur a drop in soybean prices, discouraging farmers in South America from a “sizable expansion” of plantings. Brazilian production is expected to rise 3.4 % in 2014-15 to 90 million tons, while Argentina’s output climbs 1.8 % to 56 million tons, according to the report. World soybean stockpiles will be 90 million tons at the end of the 2014-15 season, 23 % higher than the prior year, according to the report. Production of 10 major oilseed crops, including soybeans, rapeseed and sunflowers, may total 511.2 million tons, 3.2 % more than the prior year. Combined stockpiles of oilseeds were pegged at 105.3 million tons at the end of 2014-15, up from 89.9 million tons the prior season. Bloomberg