Just when the palm
oil rally was gaining a head of steam, along comes someone to remind that
prices cannot move upward indefinitely.
And in fact, they may be poised for a tumble to their lowest
in well over a year.
Palm oil futures for November touched 2,893 ringgit a tonne
at one point in Kuala Lumpur on Thursday, the highest for a benchmark contract in
That took to 4.7% gains for this week, which started off with
the release by the Malaysian Palm Oil Board of a lower-than-expected estimate
for Malaysian stocks of the vegetable oil last month, largely down to
And hopes for exports have firmed since, with the release by
cargo surveyors of data showing further growth in the first 10 days of
September (fresh statistics will be out on Friday) amid ideas of decent demand
from China, which is seen stocking up ahead of its National Day/mid-Autumn
Such ideas have only been encouraged by gains in palm oil
futures in China itself, where the Dalian exchange's January contract settled
up 1.0% at 5,772 yuan a tonne overnight, its highest close in nearly seven
months, and up 4.3% for this week.
Demand to fall back?
However, a steep decline in palm oil prices awaits, as this
demand passes, and indeed that from many northern hemisphere buyers sees a
seasonal decline, leading analyst James Fry, of LMC International, believes.
(Palm oil has a relatively high freezing point, far higher
than eg soyoil, so is unsuitable
for, for example, biodiesel for use in winter. In the UK, and probably elsewhere, there used
to be a scam of involving the sale of cheap diesel in the autumn…)
Mr Fry forecast Kuala Lumpur prices dropping below 2,400
ringgit a tonne during the last two months of 2017 - a level not seen since
August last year.
European values were seen falling too, to $674 a tonne by
that period, down nearly $100 a tonne from last month's average.
'Output is recovering'
Mr Fry too was more upbeat than some on South East Asian production,
which typically peaks around now into October, and which some believe will see
a relatively weak high, given setbacks to output blamed on the likes of labour
shortages and, according to some, residual damage to trees from the knock-on
effects of the 2015 El Nino.
In fact, "crude palm oil output is recovering from the
devastating impact of the El Nino drought", Mr Fry told a conference in India,
while terming "irrational" some of the ideas of production setbacks from labour
This factor had been exacerbated by religious festivals,
meaning fresh fruit bunches went unpicked. But this shortfall can be made up
later, Mr Fry said.
One hope for bulls may be support to values from another
source, values of rival vegetable oil soyoil,
which had a strong summer, helped by proposals by Washington to put hefty
tariffs on US imports of biodiesel (which is made from vegetable oils) from
Argentina and Indonesia.
In Chicago, soyoil futures were up 0.5% at 32.52 cents a pound
for December delivery as of 09:30 Uk time (03:30 Chicago time), maintaining
their premium over their rival.
Prices are being supported by, besides palm oil's strength,
a large downgrade this week by the US Department of Agriculture to its forecast
for US stocks of the vegetable oil at the end of 2017-18, with more seen being
used domestically for biofuel.
Palm oil itself stood at 2,886 ringgit a tonne in Kuala
Lumpur, a gain of 0.5%.
Chicago futures in soybeans
themselves were higher too, adding 0.4% to $9.64 ¼ a bushel for November
delivery, continuing to jog away from what had appeared a nasty accident for
the oilseed, when the USDA in Tuesday's Wasde report made an unexpected upgrade
to its estimate for this year's US yield.
"Trade is very mindful of USDA's tendency to understate
demand in early supply and demand forecasts and in many cases overstate
carryout estimates," said Benson Quinn Commodities.
And of course there is the scepticism over the thinking
behind the USDA yield calculations (ie, assuming a pod weight above even last
year's record, despite mixed Midwest weather).
Terry Reilly at Futures International said that the market
scriptline is "returning to expectations for a drop in the US soybean yield in
October from August, dry weather dominating central Brazil, and strong US
'Adding to the
"A lack of producer selling in the US and South America are
adding to the positive undertone," Mr Reilly added.
South American dynamics are growing in importance as corn and soybean sowings windows are opening,
with Friday bringing the (legally prescribed) starting date for plantings in Mato
Grosso, the key soy-growing state, with the Parana seeding window opened last
However, Brazilian farmers are facing setbacks from dry
weather, which has been a support to coffee
prices too this week.
Meanwhile, in Argentina, "the weather has been the opposite
and very wet with localised flooding delaying early corn planting and could
impact planted soybean acres", Benson Quinn Commodities noted.
Indeed, corn futures, which have found sloughing off an
unexpectedly-high USDA yield estimate a little harder to do, gained 0.5% to $3.53
¼ a bushel for December delivery – a small rise but potentially an important
Brian Roach at Roach Ag Marketing - who had named a
potential USDA yield surprise as a threat to his expectation corn price
recovery last month - noted that the spike lower (and then half recovery) in
prices on Wednesday had left an interesting chart pattern.
It leaves open the potential for a so-called "double bottom"
in values, a positive signal, if the December contract "holds at $3.44 ¼ a
bushel" – ie the first leg of the double bottom, reached on August 31.
"If support fails we could see values open to last year's
$3.15 a bushel fall low," Mr Roach added.
"But slow farm
selling should provide some support as end users add incremental coverage," and
the double bottom remains very much intact so far.
'A little more
futures gained 0.5% to $4.45 ¼ a bushel, with chart factors also playing a
"The technicals are leaning a little more supportive in the
winter wheat markets with near term momentum studies flattening out and trying
to turn higher," said Benson Quinn Commodities.
Furthermore, the regular upgrades to Russia's record wheat
harvest are now having only muted effects, given that logistical squeezes are
seen limiting the amount that will make it onto the world market.
Indeed, attention is turning more to Australia, and just how
low its drought and frost-hit wheat crop will be this year.
Australian export weakness?
Futures markets aren't indicating great prospect for
Australia's harvest, with the January futures contract for east coast wheat
holding at Aus$271.00 a tonne, up 7.1% so far this month.
"Australian wheat is a good Aus$50 a tonne above having any
hope of exporting mid protein wheat," said Tobin Gorey at Commonwealth Bank of
But whether export competitiveness matters…
"Grain supply in eastern Australia is going to tighten
substantially on modest crops. Local
feed demand is burgeoning at the same time because of dry weather in pastoral
"Australia might well only need to be a modest exporter of
mid-protein wheat this season."
for December edged 0.4% higher to 69.37 cents a pound in New York, continuing
to regroup after Tuesday's plunge, also fuelled by a higher-than-expected USDA
US production estimate.
"The USDA's numbers are yet to incorporate a thorough assessment
of crop losses from hurricanes Harvey and Irma," Mr Gorey said.
"The market suspects it is material, and we agree. The market for now is holding fire."
Price moves later in cotton and grains may depend on data
later on weekly US export sales, expected to come in at 350,000-550,000 tonnes
for wheat, at least matching the week-before figure.
Corn export sales are expected to 800,000-1.10m tonnes,
below the 1.48m tonnes last time.
Soybean export sales are expected at 1.0m-1.30m tonnes, down
from the 1.52m tonnes the previous week.