experts

From March 4th to 6th this week, a conference that attracted high attention from the global oils and fats industry was held in Kuala Lumpur, Malaysia. The current “bear-infested” oil market is full of fog, and all participants are looking forward to the meeting to provide direction guidance. 

The full name of the conference is “The 35th Palm Oil and Laurel Oil Price Outlook Conference and Exhibition”, which is an annual industry exchange event hosted by Bursa Malaysia Derivatives (BMD).  

Many well-known analysts and industry experts expressed their views on the global supply and demand of vegetable oil and the price prospects of palm oil at the meeting. During this period, bullish remarks were frequently spread, stimulating palm oil to drive the oil and fat market to rise this week. 

Palm oil accounts for 32% of global edible oil production, and its export volume in the past two years accounted for 54% of global edible oil trade volume, playing the role of price leader in the oil market. 

During this session, the views of most speakers were relatively consistent: production growth in Indonesia and Malaysia has stagnated, while palm oil consumption in major demand countries is promising, and palm oil prices are expected to rise in the next few months and then fall in 2024. It has slowed down or gone lower in the first half of the year. 

Dorab Mistry, a senior analyst with more than 40 years of experience in the industry, was a heavyweight speaker at the conference; in the past two years, he has also acquired another heavyweight new identity: serving as India’s leading grain, oil and food company Chairman of the listed company Adani Wilmar; the company is a joint venture between India’s Adani Group and Singapore’s Wilmar International.

 How does this well-established industry expert view the current market and future trends? His views vary from person to person, and what is worth referring to is his industry perspective, which helps industry insiders understand the context and main thread behind the complex market, so as to draw their own judgments. 

Mistry’s main point is: the climate is changeable, and the prices of agricultural products (fats and oils) are not bearish. He believes that reasonable bullish expectations should be maintained for all vegetable oils, especially palm oil. The following are the key points of his conference speech: 

The hot and dry weather phenomena associated with El Niño in 2023 are much milder than expected and will have little impact on palm oil production areas. Other oilseed crops (soybeans, rapeseed, etc.) have normal or better harvests. 

Vegetable oil prices have also performed worse than expected so far; mainly due to good palm oil production in 2023, a stronger dollar, weaker economies in core consumer countries, and lower sunflower oil prices in the Black Sea region. 

Now that we have entered 2024, the current situation is that market demand is flat, soybeans and corn have achieved a bumper harvest, El Niño has subsided, crop growth conditions are good, the US dollar is relatively strong, and sunflower oil continues to be weak. 

So, what factors will drive up oil prices? There are four possible bulls: 

First, there are weather problems in North America; second, the Federal Reserve has sharply cut interest rates, thereby weakening the purchasing power and exchange rate of the US dollar; third, the US Democratic Party won the November election and enacted strong green environmental protection incentives; fourth, energy prices have soared. 

About palm oil 

Oil palm production in Southeast Asia has not met expectations because the trees are aging, production methods are backward, and the planting area has barely expanded. Looking at the entire oil crop industry, the palm oil industry has been the slowest in technology application. 

Indonesian palm oil production may decrease by at least 1 million tons in 2024, while Malaysian production may remain the same as the previous year. 

Refining profits have turned negative in recent months, a sign that palm oil has shifted from abundant to tight supply; and new biofuel policies will exacerbate tensions, palm oil will soon have a chance to rise, and the largest The bullish possibility lies in North American weather, especially in the April to July window. 

Possible bullish drivers for palm oil are: expansion of B100 pure biodiesel and sustainable aviation fuel (SAF) production capacity in Southeast Asia, slowdown in palm oil production, and poor oilseed harvests in North America, Europe or elsewhere. 

About rapeseed 

Global rapeseed production recovers in 2023, with rapeseed oil benefiting from biofuel incentives. 

India’s rapeseed production will hit a record in 2024, mainly due to the vigorous promotion of rapeseed projects by Indian industry associations. 

About soybeans 

Sluggish demand from China hurts soybean market sentiment; improved seed technology provides support for soybean production; 

Brazil’s biodiesel blending rate has been increased, but the increase has not been as much as the industry expected; the United States imports China’s waste cooking oil in large quantities, which is bad for soybeans but good for palm oil; 

Soybean meal becomes a burden and may continue to face pressure. 

About sunflower oil 

Although the conflict between Russia and Ukraine has continued since February 2022, the two countries have achieved bumper harvests of sunflower seeds and sunflower oil processing has not been affected; 

And as their currencies depreciated against the dollar, sunflower oil became cheaper in both countries; sunflower oil captured new market shares. 

Follow China 

Will China be the driving force behind the rise in the oil market? depending on: 

When will China resume rapid growth and what about vegetable oil consumption? Will China formulate a biofuels policy? Will waste cooking oil UCO still be exported in large quantities? 

Follow India 

India’s imports in 2024 will be lower than in 2023. 

Consumption and demand in India look good, but Indian farmers hold large stocks of oilseeds for 2023, and the carryover of stocks in 2023 will be detrimental to imports. 

Global energy and food oil demand 

Global energy oil demand (biofuels) will increase by approximately 3 million tons in 2022/23; due to the expansion of production capacity and usage in Indonesia and the United States, energy oil demand is expected to further increase by 4 million tons in 2023/24. 

Global food processing demand for vegetable oil has steadily increased by 3 million tons per year, and it is expected that food oil demand will also increase by 3 million tons in 23/24. 

Factors affecting oil prices 

Whether the United States will fall into recession; China’s economic prospects; when will the two wars (Russia-Ukraine, Palestine and Israel) end; dollar trend; new biofuel directives and incentives; crude oil prices.

price outlook 

Regarding global vegetable oil prices, Mistry predicts the following: 

Malaysian palm oil is expected to trade at 3,900-4,500 ringgit ($824-951) per ton between now and June. 

The direction of palm oil prices will depend on production volumes. The second quarter (April, May, and June) of this year will be the month with the tightest supply of palm oil. 

The weather during the planting period in North America will be a key variable in the price outlook after May. Any weather issues in North America could light the fuse for higher prices. 

U.S. CBOT soybean oil futures prices will rebound due to the reduction in domestic soybean oil production in the United States and will continue to benefit from strong U.S. biodiesel demand. 

U.S. spot soybean oil will become the most expensive vegetable oil in the world, and this factor will support rapeseed oil prices. 

Sunflower oil prices look to have bottomed out. 

Summarize 

The biggest influences will be North American weather, palm oil production and the biofuels directive. 

Weather remains a major variable in agriculture. Good weather conditions, which have favored recent harvests and have pushed grain and oilseed prices to more than three-year lows, may not last long and should be viewed with caution. 

Agricultural prices are not bearish given the vagaries of the climate.