Palm oil futures gain despite rise in Malay stocks

(Agrimoney) – Palm oil futures clung on to positive territory, despite data showing a rise in Malaysian inventories to a 20-month high, as investors raised doubts about production continuing to remain, relatively, resilient.

Malaysia’s palm oil inventories rose 3.7% month on month in October to 2.17m tonnes, the highest since February last year, data from the Malaysian Palm Oil Board, the industry regulator, showed.

Although exports, in dropping 1.4% to 1.60m tonnes, fell some 22,000 tonnes less than investors had expected, production was more resilient than the market had forecast too, in falling only 0.2% to 1.89m tonnes.

Malaysian output typically peaks around October, before taking a seasonal dip to a low in February, although in 2014, a hangover from early-year dryness has been blamed for affecting the production cycle.

‘Delayed impact’

Nonetheless, despite the bigger-than-expected stocks data, crude palm oil clung on to gains in late deals in Kuala Lumpur standing 0.6% higher at 2,209 ringgit a tonne, albeit below a high of 2,231 ringgit a tonne reached before the statistics were released.

The rise reflected in part confirmation that Malaysia’s production cycle had indeed topped out early this year, in August.

“Although Malaysian crude palm oil production fell by less than expected in October, it is now extremely likely that August represented the peak production period this year, earlier than the typical historical peak in September or October,” said Edward Hugo, at broker VSA Capital.

He added that “the more recent dryness in parts of Malaysia through September and early October may have a similar delayed impact on production yields next year”.

El Nino watch

In Indonesia too, the top palm producing country, dryness in parts of central and southern Sumatra and Kalimantan, “where some producers have also reported suppressed production levels”, a lack of rainfall “may also impact regional levels of production next year”, Mr Hugo said.

The comments came as Japan’s weather bureau said that the possibility of an El Nino weather pattern setting in during the northern hemisphere winter is above the 50% it forecast last month.

The US Climate Prediction Center, an agency of the National Weather Service, last week trimmed its forecast for an El Nino to 58%.

EL Ninos are linked to dryness in South East Asia, and seen as typically supressing palm oil output – if viewed as positive for crop production in some other areas, often bringing the US Midwest, for instance, relatively cool summer temperatures which boost corn production.

Cargo surveyor data

Separate data on Monday from cargo surveyors also offered some reassurance on Malaysian palm oil exports.

Societe Generale de Surveillance saw the decline in volumes easing in the first 10 days of November, with volumes down on 0.2% month on month.

Rival Intertek Testing Services said that shipments had risen 1.3%.

Malaysia has attempted to boost its shipments by lifting an export tax until the end of 2014, after exports in the first eight months fell 7.0% from the same period of 2013.