Several oilseed analysts expect palm oil prices should rally by 15 to 20 percent by early 2020, providing modest support to high-oil crops such as canola.
The forecast was lost in more immediate market news, sparked by developments closer to home.
November canola futures topped $460 per tonne Oct. 3 for the first time since June 25 on production worries following the weekend storm that blanketed parts of the Prairies with rain and snow, flattening many crops. Only 24 percent of canola in Saskatchewan had been harvested in advance of the snowfall. Alberta’s canola harvest was at a similar low level.
Additional price support came from soybeans, which rallied on news of new Chinese buying ahead of resumption of trade talks expected Oct. 10 and from the quarterly stocks report from the United States Department of Agriculture.
That report confirmed that soybean stocks as of Sept. 1 were double the amount held the year earlier. However, the stocks were less than expected, at 913 million bushels compared to the average estimate from the trade for 982 million. In other words, the soybean stock news was not quite a bad as expected.
For the next few months, canola price direction will be mostly determined by harvest progress here and in the U.S. and also whether the U.S. and China can work out a trade deal, a goal that has so far eluded them for more than a year.
But it is always worthwhile to see what is happening with the other major global oilseed, palm oil. And the latest outlook is modestly favourable for oilseed prices.
The analysts speaking in late September at an industry conference in Mumbai, India, and reported by Reuters, said several factors related to supply and demand should lift palm oil values to US$610 to $620 per tonne in Europe by the second quarter of 2020, up from current values near $530, which are considered low.
Palm is produced mostly in Indonesia and Malaysia.
Production in 2019-20 could fail to keep up to rising demand, said Oil World’s Thomas Mielke.
Dry weather and severe smoke haze caused by burning vegetation are expected to slow the increase in production in Indonesia. Malaysia’s production could actually shrink slightly, Mielke said.
At the same conference James Fry, the chair of commodities consultancy LMC International, said weak prices during the past two years have caused producers to reduce fertilizer applications, further limiting the prospects for production growth.
Global palm production is forecast to rise by only about two million tonnes in 2019-20, down from an increase of 3.5 million tonnes last year.
Production shortfalls should coincide with increasing demand for palm oil from the biodiesel industry in Indonesia and Malaysia.
Indonesia’s government plans to increase the blend of palm oil in fuel to 30 percent in 2020 from the current 20 percent.
It wants to further increase the blend to as much at 100 percent in the next few years to lower its reliance on imported oil, to reduce its spending on fuel subsidies and to absorb the country’s excess palm oil production.
The increased domestic demand will also absorb biodiesel that will no longer be exported to the European Union because of antidumping duties levied by the bloc.
Malaysia plans to increase its palm biofuel mandate to 20 percent by 2020 from the current 10 percent.
Palm demand from India and China is expected to grow this year, further supporting the price.
China is expected to reduce its soybean crush this year because the much smaller swine herd will need less soy meal. A reduced crush will mean less soy oil will be produced and palm oil will likely fill the gap.
In India, vegetable oil demand is expected to rise faster than domestic production. India’s soybean crop was damaged by excessive rain late in the monsoon season.
The relative strength in canola oil and meal compared to the weakness in seed prices has lifted the canola crush margin, which is the measure of core processing returns based on approximate industry yields.
The November-December canola crush margin on Oct. 3 was $92.44 per tonne, well up from $36.65 last year at the same time.
Canola domestic disappearance as of Sept. 29, a stand in for crush volume, stood at 1.6 million tonnes, up from 1.27 million last year at the same point.