Malaysia's palm oil stocks swelled at their fastest in nearly three years, boosted by an unexpectedly large surge in output – but the impact on prices was curtailed by expectations that the production jump will not be repeated.
Palm oil inventories in Malaysia, the second ranked producer and exporter of the vegetable oil, hit 1.78m tonnes last month, their highest since April last year, and nearly 150,000 tonnes ahead of market expectations.
The extent of the inventories – which grew by 16.8% month on month, the fastest since August 2014 – reflected in part a disappointing export performance, with shipments Malaysia's remaining below 1.4m tonnes for a second success month.
Indeed, they came in some 35,000 tonnes short of market forecasts.
However, the inventory surge was down in the main to production which came in at 1.83m tonnes, the highest July figure on record, and the highest for any month since October 2015 - before damage from dryness, blamed on El Nino, told on Malaysian output.
While production is typically on a rising trend in July, heading towards a seasonal high in September-October, the extent of the increase in output from June was particularly strong this time, at 21% - also the biggest month-on-month rise reported since August 2014.
The figure was well ahead of market expectations of a 1.68m-tonne result.
The extent of the output surge likely reflected a labour effect, and return of plantation workers, largely from Indonesia, after the Eid-Al-Fitr holiday said Ivy Ng, head of Malaysia research at CIMB in Kuala Lumpur.
"At the end of June, many workers went back to Indonesia," Ms Ng told Agrimoney.com, adding that this appeared a factor behind June's unexpectedly low palm oil output number.
"In July they headed back," enabling a production pick-up, which was enhanced by the extent of palm fruit left unharvested from late June.
"As they went back to their rounds, they picked up more fruit" than would usually have been the case.
Nonetheless, palm oil futures extended gains after the data to stand up 1.2% at 2,662 ringgit a tonne in Kuala Lumpur.
Ms Ng said that, given the suspected one-off boost to the July output figure, production would see production showing a similar surge this month.
However, with exports not expected to be "too exciting, stocks levels will remain high in the month of August".
In fact, Malaysian palm exports fell 1.4% month on month in the first 10 days of August, cargo surveyor Intertek said separately on Thursday.
By Mike Verdin