Rabobank International’s Asia regional head of food and agribusiness research and industry, John Baker, said at current crude palm oil (CPO) price of US$75 (RM241.5) per barrel and higher production cycle in the third quarter, palm oil prices are set to settle.

Palm and soyaoil prices move in lock-step because they are perfect substitutes of each other in cooking oil, bakery fats and biodiesel.

The US, Brazil and Argentina are the largest producers of soyaoil in the world. This year, soya farmers in Latin America expect a record harvest.

“Supplies of soyabeans have become ample and stockpiles are building up. This could start weighing on prices,” he said.
“So, we see palm oil falling off slightly in the next few months but it should remain above US$700 (RM2,254) per tonne,” Baker told a news briefing on the global outlook for agricultural commodities in Kuala Lumpur yesterday.

Yesterday, crude palm oil futures on the Malaysian Derivatives Exchange added RM6 to close at RM2,390 per tonne. This level is 12 per cent lower than this year’s highest level of RM2,722 per tonne traded in early March.

Maybank Investment Bank also expects vegetable oil prices to trend down in the second half of this year.

Maybank analyst Tan Chi Wei’s mildly bearish view on palm oil prices is supported by a current parity of palm and soyaoil prices. Palm oil traditionally trades at a discount of more than US$100 (RM322) per tonne to soyaoil but that had started to narrow to just US$20 (RM64.4) per tonne a year ago.

Also, an eventual monetary tightening in the US could result in a further appreciation of the US dollar.

“This could be negative for commodity prices, all else being equal,” Tan said.