Lower production forecast led to a new record for palm oil prices

USDA experts in the January report on oilseed supply and demand slightly lowered their estimate of global oilseed production in 2021/22 MG, due to a decrease in palm oil production, which caused further growth in quotations to a new record value.

Following the release of the report, March palm oil futures on the Malaysian stock exchange jumped 2.4% to 5,161 ringgit/ton (1 1,235/ton) amid forecasts of further decline in global production, as well as production in Malaysia in the first quarter. CGS-CIMB Research predicts that oil reserves will decrease by another 4.5% to 1.51 million tons by the end of January 2022, after falling by 12.5% in December, while production and export volumes will decrease by 12.5% and 20%, respectively.

It should be noted that exports for the first decade of January fell by 40.6% to 325.6 thousand tons compared to the same period in December, due to a sharp increase in prices since the beginning of the year, which will restrain further growth.

The USDA in its January report on oilseed supply and demand made the following changes compared to December:

- the forecast for global vegetable oil production is lowered by 1.06 million tons to 213.91 million tons, which is 7.57 million tons higher than in 2020/21 MG, mainly due to a decrease in palm oil production by 1 million tons to 75.54 million tons (72.87 million tons in 2020/21mg) due to a reduction in the harvest in Malaysia, as well as a decrease in soybean oil production by 0.34 million tons to 61.3 million tons (59.22 million tons).

- the forecast for global consumption was lowered by another 0.48 million tons (after it was reduced by 0.47 million tons in October, and 0.46 million tons in November, and 0.64 million tons in December) to 210.67 million tons, which is 5.31 million tons higher than in 2020/21 MG. The reason for the decline in consumption remains high prices for vegetable oils, as well as new quarantine restrictions in countries.

The forecast for global vegetable oil imports was lowered by 0.94 million tons to 85.78 million tons (81.74 million tons in 2020/21 MG) due to a decrease in palm oil imports by 0.88 million tons to 49.66 million tons (47.64 million tons in 2020/21 MG), including to the EU by 0.25 million tons, China by 0.1 million tons and India by 0.15 million tons.

 The estimate of the world's final vegetable oil reserves in my 2021/22 was reduced by 0.25 million tons to 23.73 million tons (24.56 million tons in my 2020/21) due to a decrease in Palm and sunflower oil reserves, which is partially offset by an increase in rapeseed oil reserves against the background of increased production.

March soybean oil futures on the Chicago Stock Exchange yesterday fell 1.7% to 1 1,286/ton, but overall rose 11.5% for the month amid forecasts of a decline in the soybean harvest in South America.

Prices for black sea sunflower oil remain at a high level of about F 1365-1390/ton FOB, but demand remains at a low level, which hinders further price growth.

During September-November, Ukraine reduced exports of sunflower oil by 15% compared to the same period last year to 1.35 million tons as a result of falling demand from China and India. India, which is the main buyer of Ukrainian sunflower oil, reduced its imports during the specified period by 11.5% to 466.5 thousand tons, although in 2020/21 MG it purchased 1.56 million tons of Ukrainian oil, which accounted for 30% of its total exports.

China, which is the second largest buyer of Ukrainian sunflower oil, during this period reduced purchases by 50% to 247.1 thousand tons, including 177.8 thousand tons shipped in November.