Malaysian palm oil futures rose for a third straight session and ended Friday’s session on a positive note. Gains in soy oil bucked the upward trend. Soy oil is climbing higher over the past few days on concerns due to tight soybean harvest and perception of value buying since prices have turned reasonably cheaper when compared with prices prevailing one month back.
The hot and dry weather conditions expected in parts of the U.S. Midwest threaten to reduce yields, hence prompting the fund houses to increase their buy positions in the derivatives market. Corn and soybean yield potential is particularly sensitive to the weather in July and August, which is why the market is often glued to every new forecast model run this time of year, as each update could potentially enhance or change current sentiment.
Palm oil is largely affected by price movements in related oils because they compete for a share in the global vegetable oils market. Palm oil has a strong positive correlation with soya oil in terms of price swings. Palm oil has fallen sharply over the past two months as rival Indonesia resumed exports. So far in July, it has lost close to 18% after posting a 22% decline in June. Meanwhile, crude palm oil export sales from top producer Indonesia have started increasing and total exports have reached 100,000 tonnes to 140,000 tonnes per day after the government waived its export lev, in order to ease a supply burden.
After the Russia-Ukraine conflict, the demand for biofuel has been good and fossil fuel prices are ruling higher. The outlook for biofuel demand remains optimistic for the second half of 2022. The festive season in India is approaching which implies that demand from India is expected to increase in the coming weeks. India is the second largest consumer of palm oil in the world after Indonesia. Summing up, we expect a favorable trade scenario during the second half of 2022, given that prices are still giving positive returns, assuming helpful weather and reducing Malaysia’s labor shortage - in supporting production.
It may be noted that due to border movement restrictions during the active COVID period, the labor shortage problem had emerged in Malaysia. As the export prospects for Malaysian palm oil have increased, an increase in the production scenario will imply better trade prospects in the forthcoming months.
