Palm oil futures hit a four-month low, even as US officials hiked expectations for Indonesian output, and exports, of the vegetable oil, citing the prospect of La Nina lifting rainfall levels.
Palm oil futures for February touched 2,544 ringgit a tonne in Kuala Lumpur, the lowest for a benchmark contract since July, before recovering some ground to settle at 2,564 ringgit a tonne, down 1.0% on the day.
The decline was attributed in part to strength in the ringgit, which curtails the competitiveness of Malaysian exports, with the currency at one point touching a 15-month high of 4.045 to $1, before retreating to negative territory.
Palm oil futures also fell on the Dalian exchange in China, a major importing country, where the best-traded January contract touched a four-month low of 5,258 yuan a tonne, before paring losses to settle at 5,318 yuan a tonne, a drop of 0.6% on the day.
‘Favourable weather conditions’
The declines also came as the US Department of Agriculture’s Jakarta bureau pegged palm oil output in Indonesia - the top producing country, ahead of Malaysia – at a record 38.5m tonnes for 2017-18, on an October-to-September basis.
The upgraded figure is 2.5m tonnes ahead of the USDA’s official estimate, and followed on from a 2016-17 which, at 36.0m tonnes, also saw notably higher production than the department has pencilled in.
In 2016-17, “favourable weather conditions fuelled growth in palm oil production following the dry weather” which followed the last El Nino weather pattern.
“Both publicly-listed plantation companies and industry associations reported strong growth in fresh fruit bunch production during first nine months of 2017.”
La Nina factor
And, for 2017-18, the bureau forecast the potential for further growth in Indonesian output, in part from an extra 100,000 hectares of plantations coming into active production, but also the boost from the onset of La Nina, which Australian officials declared on Tuesday.
“A typical La Nina event would bring higher rainfall” to Indonesia, the bureau said.
“With expectations for continued good growing conditions and average-to-above-average precipitation over the next 12 months, production is forecast to reach 38.5m tonnes.”
The bureau forecast some of the extra palm oil being swallowed up by increased consumption, including from plants turning the vegetable oil into biodiesel.
“Following a slight decline in May-June, monthly biodiesel production has returned to normal.
“In addition, food use is expected to continue expanding in line with population growth.”
Nonetheless, Indonesian palm oil exports were forecast hitting a record 28.0m tonnes in 2017-18, 1.8m tonnes above the USDA’s official estimate.
The bureau said that its export upgrade was “due to the strong pace of sales in 2017 and expectations for plentiful supplies and competitive prices through 2018”.