Palm oil fell in price by 5.4% after raising the forecast for the production of vegetable oils

In August's supply and demand balance sheet, USDA experts again raised their forecasts for global vegetable oil production, trade, processing and stocks amid expected increases in soybean, sunflower and canola crops.

September palm oil futures on Malaysia's Bursa exchange fell 5.4% to 4,182 ringgit/t, or $936/t, since Monday, but are still 10% above last month's level. If the decline in oil prices continues, the quotations of the cheapest palm oil currently on the market will increase the pressure on soybean and sunflower oil prices, especially in September, when the new soybean and sunflower harvests begin.

September soybean futures in Chicago fell 2.5% to $1,493/t since Monday, but are 17.5% higher than last month. This indicates that prices are overheated, so they may fall against the background of new crop deliveries.

In comparison with the July estimates, the August balance on vegetable oils for 2022/23 MR underwent the following changes:

• The forecast of the world production of vegetable oils was increased by 0.84 million tons to 219.05 million tons, which will exceed the 2021/22 MR indicator by 8 million tons. Compared to the previous season, the production of palm oil will increase by 3.11 million tons, soy oil - by 2.42 million tons, rapeseed oil - by 2.21 million tons, and sunflower oil - by 0.36 million tons.
• The estimate of world consumption was increased by 0.9 million tons to 213.02 million tons, which will exceed the 2021/22 MR indicator by 6.77 million tons.
• The forecast of world ending stocks was increased by 0.5 million t to 30.04 million t (28.5 million t in FY2021/2) as a result of the increase in sunflower oil stocks in Ukraine against the background of slow exports.

For China, the forecast for the import of vegetable oils in 2021/22 has been reduced by 600,000 tons, in particular palm - by 200,000 tons to 4.3 million tons, rapeseed - by 200,000 tons to 1.15 million tons, sunflower - by 200,000 tons up to 600,000 tons. Traders are worried about whether China will be able to resume imports in the new season, given the deterioration of macroeconomic indicators.

Since Monday, world oil prices have fallen by 4-5% to the lowest level since the Russian invasion of Ukraine. Brent oil was sold at $94/barrel, WTI oil was cheaper at $87/barrel. Russia's Urals crude, the Putin regime's main source of revenue, has been selling 30% cheaper than Brent in recent months and has now fallen below $65 a barrel.

Since June, energy prices have been falling on expectations of an economic recession and a prolonged war. And yesterday's fall is due to a decrease in the discount rate in China against the background of poor economic indicators. A recession in China will reduce economic growth and energy demand, which will negatively impact vegetable oil demand and prices.