Palm hits 11-month low, leading oilseeds lower

(Agrimoney) – When will palm oil futures find a bottom?

For a fourth successive session, Kuala Lumpur’s October lot set an 11-month low for a benchmark contract, this time of 2,006 ringgit a tonne.

And this despite a report overnight from the US Department of Agriculture’s Jakarta office foreseeing output in Indonesia, the top palm oil producing country, at 33.0m tonnes for 2015-16, starting in October.

That would, unusually, represent no year on year growth, and is a figure 2.0m tonnes below the USDA’s official forecast.

‘El Nino effects seem muted’

“Production may decline due to weather concerns,” the bureau said, noting observations of a “strong” El Nino, a weather pattern which has a habit of causing dryness in South East Asia.

“Industry experts claim that production declines up to 30% are possible following a strong El-Nino,” it said, although itself foreseeing Indonesian output falling some 6% below its potential.

And will the damage be even that much?

One of the troubles for palm oil is that, as broker CHS Hedging said, “El Nino effects seem muted at the moment”.

(That thinking is also being reflected in higher estimates for the wheat crop in Australia, which has not suffered the dryness that some feared earlier in the El Nino cycle.)

Data ahead

Whatever, the bureau stuck with expectations of Indonesian palm exports rising 500,000 tonnes to 24.0m tonnes in 2015-16, saying that rich carry-in inventories would support supplies, despite the production standstill.

And, on the immediate horizon, data next week from the Malaysian Palm Oil Board are expected to show palm stocks in Malaysia, the second-ranked producer of the vegetable oil, gaining 1.6% month on month to 2.19m tonnes.

Malaysia’s output it seen rising slightly last month, with the end of Ramadan seeing plantation workers return from holiday, while cargo surveyors have already reported a drop in the country’s exports, expected to have fallen 6.9% month on month to 1.58m tonnes.

Kuala Lumpur palm oil futures stood at 2,014 ringgit a tonne as of 09:00 UK time (03:00 Chicago time), down 1.1% on the day.

Earlier, palm oil futures on the Dalian exchange in China, a huge importing country for the vegetable oil, settled down 1.3% at 4,592 yuan a tonne.

‘Hammered’

And of course a negative trend in palm oil tends to feed through into rival vegetable oils too, such as soyoil, which itself set a six-month low of 29.41 cents a pound this month on a spot contract basis (currently the August lot).

Richard Feltes at Chicago broker RJ O’Brien flagged how soyoil futures were “hammered” in the last session, citing a “renewed wave of soymeal/soyoil spreading” – ie a wave of long bets on soymeal (a feed ingredient) hedged against shorts in the vegetable oil (the other major product of soybean processing).

Besides pressure from the “widening discount of palm oil versus Argentine soyoil”, Argentina being the top soyoil exporter, Mr Feltes also highlighted a “recent US soymeal sale to Philippines”, indicating demand for the feed ingredient.

At broker Futures International, Terry Reilly also noted pressure on soyoil from “poor US biodiesel margins, lower crude oil, and ample US supplies”.

Soyoil is linked to energy markets through its use, with other vegetable oils, in making biodiesel.

‘Surprisingly good’

Still, Mr Reilly took a more upbeat view of soyoil prices, noting strong US exports of the vegetable oil, besides the potential for El Nino yet to hit South East Asian palm oil output.

“US soyoil exports were surprisingly good at 158m pounds for the month of June, well above our working estimate and more than double the May period of 72m pounds,” besides the 79m pounds a year before, Mr Reilly said.

The data imply that US soyoil exports for 2014-15 could come in at 2.05bn pounds – 150m pounds above the current USDA forecast.

The weakened prospects from Canadian and European dryness for world production of canola/rapeseed, an oil-heavy rather than meal-heavy oilseed, also offers reason for support, he said.

Price falls

Nonetheless, best-traded December soyoil futures stood 0.3% lower at 29.94 cents a pound, close to a contract low.

Canola offered no support, in easing 0.2% to Can$500.80 a tonne in Winnipeg for November delivery.

And this was all little help to the most widely-traded oilseed, soybeans, which fell by 0.7% to $9.87 ½ a bushel for Chicago’s August contract.

The best-traded November lot fell by 0.2% to $9.51 ½ a bushel, maintaining a position above its 10-day moving average but failing again, in an early-session rally, to set camp above its 100-day moving average, at a little under $9.55 a bushel.

‘Sudden death syndrome…’

Still, the prospect of data ahead could yet wreak bigger changes in values, as in the last session, when a look forward to the USDA’s monthly Wasde crop report on Wednesday provoked buying.

The Wasde is widely expected to lower the estimate for US soybean sowings this season, after late-spring rains disrupted late plantings.

The yield forecast of 46.0 bushels per acre is expected to see a downgrade too, with estimates of 43.7-45.5 bushels per acre.

Informa was one of the latest to issue an estimate, on Wednesday, of 45.4 bushels per acre.

CHS Hedging, meanwhile, noted that sudden death syndrome – a disease linked to fungal infections, and to planting in wet soils as occurred this year – “in the eastern Corn Belt was in the market chatter on Wednesday”.

‘Under-water hedge fund long’

For corn, the Wasde is expected to see a yield of 161.6-167.5 bushels per acre, with most analysts seeing a downgrade from the USDA’s current 166.8 bushels per acre.

Informa Economics pegged the corn yield at 165.4 bushels per acre, with INTL FCStone on Tuesday putting it at 165.0 bushels per acre.

And more cautious figure may gain credibility if weekly USDA crop progress data on Monday show the condition of the crop declining.

“The trade is resigned to a likely decline in crop ratings Monday, as signs of fertilizer deficiency become more prominent across the central and eastern Midwest,” RJ O’Brien’s Richard Feltes said.

Still, he also noted “concern over the remaining large under-water managed fund long”, referring to the huge net long position in corn placed at higher prices, and which speculators have yet to unwind fully.

Corn for September fell by 0.3% to $3.71 ¾ a bushel, while the best-traded December lot dropped 0.3% to $3.82 a bushel.

Aussie upgrades

Chicago wheat declined too, by 0.6% to $4.99 ¼ a bushel, battling with its 10-day moving average, and falling back below the $5.00-a-bushel mark after two sessions above it.

On the positive side for prices, Saudi Arabia came in with a tender for 495,000 tonnes of hard wheat, following on from the Egyptian purchase of 120,000 tonnes of softer wheat on Wednesday.

Still, the Egyptian tender underlined the lack of competitiveness of US supplies.

And on the supply side, Australia’s crop received two upgrades on Thursday, from Pentag Nidera and National Australia Bank, as the El Nino fails to cause quite such eastern dryness concerns as had been feared.

Export data later

Returning to US exports, analysts do not foresee the number of nearly 700,000 tonnes being repeated in weekly export sales data unveiled later, with the range of forecasts at 400,000-600,000 tonnes.

For soybeans, the data are expected to show up to 200,000 tonnes of orders for US supplies in 2014-15 (which ends this month for the oilseed, and corn), with 2015-16 orders at 350,000-700,000 tonnes.

For corn, old crop orders at expected at 250,000-450,000 tonnes, and new crop at 300,000-500,000 tonnes.