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US risks piling more misery on palm oil prices

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US farm officials risked piling more misery on palm oil prices, which closed within 4% of a three year low on Friday, by hiking estimates for output in Indonesia, the top producing country – and signalling more growth to come.

The US Department of Agriculture, in its much-watched Wasde monthly crop report, lifted its estimate for Indonesia's palm output in 2011-12 by 500,000 tonnes to a record 25.9m tonnes.

Growth at that pace was equivalent to nearly 10%.

And it forecast expansion nearly as strong, of 8.1%, in the current season, taking output to 28.0, tonnes, 1.0m tonnes higher than previously forecast.

Sensitive time

The data are also above estimates from some other commentators, with the Indonesian Palm Oil Commission earlier this year pegging the country's output at 22.5m tonnes in calendar 2011 and "maybe more than" 23m tonnes in 2012.

Standard Chartered last month estimated Indonesia's output this year at 23.6m tonnes.

And the upgrades come at a sensitive time for the palm oil market, which last month saw values in Malaysia - the second-ranked producer but whose Bursa Malaysia futures set world benchmark prices – fall to their lowest since 2009.

The market has been depressed in particular by statistics for Malaysia's industry, which are more readily available than those for Indonesia, and saw inventories reach a record high last month as exports failed to keep up with a seasonal high in production.

The Malaysian Palm Oil Board on Monday to unveil its monthly report for October, in which analysts forecast the stocks figure rising further, to 2.67m tonnes.

Young trees

The USDA said its output upgrade reflected the strength of yield growth at Indonesia plantations, which had beaten expectations.

"Indonesia has recorded consistently strong annual trend yield growth, and the revised 2012-13 estimate reflects expected continued growth," the department said, noting that half of the country's oil palm plantations had been planted within the last eight years of ago.

"Yield of oil palm plantings increase steadily up to eight years of age, plateau from 10 to 20 years and then decline after that.

"The large population of young trees with strongly growing output potential is expected to underpin continued future national yield growth."

Soyoil prices dip

The pressures on palm oil have some influence on other oilseed markets too, notably soyoil, which is an alternative for many uses, and which fell 1.3% to 48.13 cents a pound in Chicago for December delivery.

The USDA also on Friday raised its estimate for US production of soybeans, and soyoil, in 2012-13 lifting its forecast for world inventories at the close of the season to 2.90m tonnes.

Rapeseed too, as an oilseed which produces a large proportion of vegetable oil rather than meal in processing, is vulnerable to palm oil prices.


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