Price-premium gap between the rival edible oils has narrowed down
PETALING
JAYA: The US forecast of a thin supply of corn and soybean this year
would have a minimal influence on the demand and price of crude palm oil
(CPO).
This was because the price premium that soybean oil commands over palm oil has narrowed down, analysts said.
Historically,
the price-premium gap between the two rival edible oils was quite wide,
with palm oil has always been the cheaper alternative.
CPO
three-month futures, which have rallied more than 32% last year, showed
lukewarm response to the news from the United States. It advanced only
RM44 to RM3,694 per tonne yesterday.
OSK Research Sdn Bhd analyst Alvin Tai said the price-premium gap that soybean commanded over palm oil had narrowed to about US$20.
“This
is quite narrow, given the scenario that it reached US$400 in 2008.
Thus, I think there would be minimal impact on CPO prices and demand.
Just look at the market response today where I believe the CPO price did
not move much on the US forecast,” he told StarBiz.
A
report issued by US Department of Agriculture (USDA) on Wednesday showed
lower estimates for the country’s corn and soybean harvest and
stockpiles due to adverse weather conditions.
Bloomberg
said in a report that inventories of soybean in the United States, the
world’s largest grower and exporter of the commodity, were forecast to
drop to 3.82 million tonnes before this year’s harvest, from an
estimated 4.49 million tonnes last month.
That will cut global
inventories to 58.28 million tonnes before the next northern hemisphere
harvest, down from a 60.1 million tonne estimate last December.
According
to a Rabobank report, the current La Nina weather pattern had
threatened yields with its drier-than-average conditions and loomed as a
major risk to send world soybean stocks-to-use ratio to multi-year lows
and prices to record highs.
“The USDA made little change to the
demand side of the equation despite the rapid pace of soybean exports
where as a result, stocks-to-use for soybeans dropped to 4.2% the lowest
since 1964/1965 heightening the sensitivity of the market to any
further supply-side shocks,” said Rabobank.
As for palm oil, HwangDBS Vickers Research
said data released by the Malaysian Palm Oil Board showed that CPO
production in December 2010 stood at 1.23 million tonnes, reflecting a
15.5% month-on-month drop.
“Compared with the peak figure in October, the volume in December has collapsed by 24.7%, the steepest seasonal drop since 2002.
“This
could be due to wet weather disrupting harvesting while the yields of
fresh fruit bunches might have fallen due to the laggard impact of
severe drought from January till February 2010.
“We expect the
production in January and Febuary to drop further before recovering from
April onwards,” it said in a recent report.
However, the
research house said the demand remained strong, with exports in December
stood at 1.29 million tonnes, reflecting a 14.6% decrease
month-on-month but a 5% increase year-on-year.
Source : The Star by Sharidan M Ali
