Palm Oil Jumps to 26-Month High on Forecast for Lower Global Soybean Crop

Palm oil futures surged to the highest level in more than 26 months, tracking gains in soybeans, which rallied for a second day after the U.S. Department of Agriculture forecast a smaller global crop. 

The contract for delivery in December jumped as much as 6.5 percent to 2,940 ringgit ($948) a metric ton, the highest level since Aug. 1, 2008, on the Malaysia Derivatives Exchange. Prices gained for a sixth consecutive week last week, the longest winning streak since a seven-week advance ending May 8, 2009.

The U.S. soybean crop will be a record 3.408 billion bushels (92.8 million tons), compared with 3.483 billion projected in September and 3.359 billion gathered last year, the USDA said on Oct. 8. August rains failed to boost yields, prompting the government to reduce its acreage estimates.

“Crude palm oil prices may be ripe for a further upswing given the USDA’s recent downgrade of soybean crop estimates and the threat to oilseeds and edible oil supplies posed by the ongoing 

La Nina,” Ivy Ng, an analyst at CIMB Investment Bank Bhd., said in a report today.

The brokerage raised its forecast for crude palm oil prices by 9 percent to an average 2,630 ringgit a ton this year and as much as 14 percent to 2,800 ringgit for 2011. The price has averaged 2,502 ringgit this year, according to Bloomberg calculations.

Soybean futures for November delivery in Chicago gained as much as 4.4 percent to $11.8475 a bushel in Chicago, the highest price since June 5 last year. The contract traded at $11.775 a bushel at 9:06 a.m. in Mumbai.

Malaysian Exports

December-delivery soybean oil gained as much as 2.2 percent to 47.64 cents a pound in Asia, the highest level since Sept. 29, 2008. Soybean oil and palm oil are direct substitutes.

Malaysia’s palm oil exports fell 0.4 percent in the first 10 days of October to 395,015 tons from the same period in September, independent market surveyor Intertek said today.

On the Dalian Commodity Exchange, palm oil for delivery in May jumped as much as 5.6 percent to 8,184 yuan ($1,226) a ton, the highest level since Aug. 4, 2008. Dalian May-delivery soybean oil surged as much as 4.5 percent to 8,918 yuan.

CME Group Inc.’s December palm oil contract, pegged to the Malaysian benchmark price, surged as much as 5.4 percent to $938.25 a ton, the highest level since the exchange began trading the commodity in May.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net;

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

China May Lack Enough Edible Oil Stocks To Curb Prices -Report

China may lack sufficient edible-oil reserves to effectively curb rising prices despite an imminent state auction, the Securities Times reported Thursday. 

 

China's grain authorities Wednesday announced an unusual state auction of edible oils, without disclosing details including the date, oil types and offer volumes. The authorities said the intent was to ensure supply and stabilize prices.

Sharply rising prices have been of growing concern to the government, and Wednesday's announcement marked the addition of one more food category to a range of agricultural commodities that are testing the ability of China's vaunted agricultural reserves to defend the country's market stability and food security.

Citing unnamed industry insiders, the Securities Times said the edible oils to be auctioned were likely soyoil and rapeseed oil.

However, the newspaper said, private-sector estimates place national reserves of such vegetable oils far short of domestic demand, limiting the extent to which the authorities will be able to use auctions to stabilize the market.

China does not officially disclose its agriculture reserve levels.

The Securities Times report was also carried Thursday on the website of the China Grains Network, the research arm of state grains stockpiler China Grain Reserves Corp., also called Sinograin Corp.

"The dimensions of such an auction are likely to be limited, which makes it hard to alter the fundamental market situation," the newspaper said.

The auction, China's first this year, is more likely aimed at clearing old edible-oil stocks dating from 2008, as the shelf life of such stocks are near expiry and warehouses are running out of space, it said.

Though it didn't venture to identify likely offer volumes, crucial for gauging the strength of the government's ability to control prices, the Times suggested that state reserves of such edible oils were too small to influence the market.

China's rapeseed oil reserves were around 1.4 million tons, the newspaper said. If true, such reserves would be about a third of domestic rapeseed oil consumption of around 4.5 million a year, according to September data by the state-backed think tank China National Grains and Oils Information Center.

The newspaper also said that "a conservative estimate of state soyoil reserves is 1.4 million tons or more, a small percentage of domestic demand." The CNGOIC estimated current Chinese soyoil consumption at around 10 million tons a year.

The Securities Times said market-supportive rapeseed purchases, which have all but stopped this year, reached 5.08 million tons.

Among the state-linked buyers were Sinograin with 2.3 million tons, Cofco Ltd. with 600,000 tons, Chinatex Corp. with 180,000 tons, and local grain agencies with 1 million tons, the newspaper said. It didn't identify the buyer or buyers of the other 1 million tons.

Dwindling global stockpiles and surging domestic demand have spurred sharp gains in food prices in China and abroad this year, but given the size of available reserves, edible oil prices are expected to keep rising, it said.

The most-active palm oil futures on the Dalian Commodity Exchange have risen by 18% and soyoil futures by 15% in the last three months, outstripping a 9% increase in bellwether soybean futures.

The state has also been auctioning wheat, corn and rice weekly to hold down prices. 

Dow Jones Newswires

Floods, Drought Will Prevent Gains in China's Grain Production This Year

Natural disasters may block any increase in China’s grain production this year as the worst floods in a decade ruin crops.

Flooding cut harvests of early rice in the major growing areas of southern China, Xinhua News Agency cited Vice Agriculture Minister Chen Xiaohua as saying yesterday during a government inquiry on grain safety. Crops in low-lying areas of the country’s fertile northeast were also damaged, he said.

China’s corn imports in July surged after traders bought the most overseas grain in more than 10 years to replenish shrinking domestic supplies. Early rice production this year fell 6.1 percent to 31.3 million tons, the National Bureau of Statistics said on its website yesterday. The world’s most- populous country grows almost a third of the globe’s rice and cotton, and produces about half its pork.

“This year’s weather will not reduce the output,” Chen Shuwei, a manager at Beijing Orient Agribusiness Consultant Co. said in a telephone interview. “China will not have a shortage in the next one or two years.”

Low temperatures due to floods delayed the ripening of winter wheat by five to seven days, and spring sowing in the northeast by seven to 10 days, the minister said. Lower rice output won’t stop overall summer grain production from equaling the levels of previous years, making it China’s seventh year of bumper harvests, Xinhua quoted the government’s Chen as saying.

Yalu Floods

Heavy rain in the northeastern province of Liaoning since July flooded the Yalu River on the border with North Korea, the region’s second-worst overflow since 1949. Liaoning and neighboring Jilin should brace for further heavy rainfall this weekend, the National Meteorological Center said today.

Officials at the inquiry said they are confident in the coming autumn harvest, which produces more than 70 percent of China’s annual grain output, Xinhua said. The report cited Chen as saying the seeding area has been increased, and quoted Zhang Xiaoqiang, a vice minister of economic planning, as saying enough grain is in storage to prevent shortages.

A rise in global grain prices won’t affect prices in China due to its ample reserves, Zhang said. Imported wheat, corn and rice equal less than 1 percent of China’s output, he said. Corn rose to a 14-month high yesterday on signs of increased demand for U.S. supplies, after drought reduced crops in Russia and parts of Europe, and flooding cut acreage in Canada.

Corn Harvest

Corn output in China, the world’s second-biggest producer and consumer of the grain, may rise 4.8 percent this year to 165 million metric tons on increased planting and good weather conditions, according to a report this week by Cngrain.com, a portal owned by China Grain Reserves Corp., manager of state grain stockpiles.

Total planted area may have expanded 2.2 percent to 471 million mu (31.4 million hectares), it said. Delayed planting and heavy rains in some regions didn’t have a significant impact on crops, the report said.

China probably won’t order further corn imports this year as global prices climb and on speculation the domestic harvest will be better than expected, according to Wanda Futures Co., the second-biggest brokerage by volume on the Dalian Commodity Exchange.

By Bloomberg News