Soya & canola prices now

With traders concerned about the effect of El Niño on palm oil supply and drought impacting US and Argentine soyabean output, vegetable oil prices which fell steeply in April and May are now rallying in some markets

John Buckley

After another steep drop in prices in April and May, some of the bulk vegetable oil markets have been staging a partial recovery mid-year (see Figure 1, right).

The rally was led by soya and canola, with the market looking at weather and/or planting developments in North America and Australia and their expected contributions to total oil supply growth in the coming 2023/24 season.

The war in Ukraine also continued to impact forward supply assumptions for sunflowerseed and rapeseed from the region. However, palm oil prices are weaker amid a mixed supply/demand outlook.

El Niño impact on palm oil

For Asian palm oil producers, the key factor in the months ahead will be the impact of an El Niño event, often a precursor to drier, sometimes hotter-thannormal weather in the world’s largest vegetable oil producing region.

‘Water stress’ was already reported to be affecting Malaysia’s top palm oil producing state, Sabah, increasing the impact of reduced fertiliser use and labour shortages on maintenance over the past three years.

The Malaysian Palm Oil Board warned that El Niño could reduce production by 1-3M tonnes next year, with some observers predicting that mid-year output might be down, rather than up seasonally.

On the other hand, other analysts think that the recent, post-COVID return of migrant workers should have some offsetting impact from the second half of this year onwards.

Not surprisingly, palm oil prices have been extremely erratic recently on the Bursa Malaysia futures market (see Figure 2, above), first plunging to near two-year lows as major importers like China and

India turned to cheaper soft oils, with India’s monthly palm oil imports reaching a 27-month low. In addition, the EU confirmed its intention to move against imports linked to deforestation.

However, the mood change turned bullish in June, as traders began to fret about the El Niño effect. At the same time, India jumped back into palm oil, bringing in almost 50% more in June as prices fell.

Restraint was offered by Indonesia continuing to export similar quantities to last year, reducing the amount its producers had to conserve for domestic customers in relation to exports, and cutting its reference price. However, the top producer’s input looked a little more bullish as the month progressed amid news it would accelerate its replanting scheme and was progressing on its programme to expand its palm biodiesel mix. Like Malaysia, which earlier suffered from too much rain and flooding, Indonesia is currently seen as vulnerable to drier conditions that may emanate from an emerging El Niño system.

The US Department of Agriculture (USDA) is forecasting a sharp slowdown in Indonesian production growth – up 1M tonnes in the 2023/24 season ending 30 September, compared with a 4M tonne increase estimated for 2022/23.

Indonesian exports are forecast to be static at 28.4M tonnes next season after an estimated 6M+ tonne rise in 2022/23. Malaysian 2023/24 production is projected to rise by a mere 400,000 tonnes to 19M tonnes in 2023/24, with exports up by 800,000 tonnes to total 16.6M tonnes.

Among the leading palm oil importers, China’s demand is estimated to have soared back post-COVID to 6.6M tonnes from 4.4M tonnes in 2021/22 but is not seen growing more than 300,000 tonnes in 2023/24. European demand – seen down by some 100,000-200,000 tonnes – does not yet seem to have suffered much from EU plans to curb imports