Malaysian palm oil futures rose to a one-week high on Friday after a key plantings report in the United States showed soybean stocks were tight. US farmers say they will plant this spring some of the biggest corn and soybean crops ever, racing to keep pace with unrelenting global demand that is rapidly depleting stockpiles and driving up food costs.
The USDA reports underscored that US farmers are reaching the limits of arable land in the world's biggest crop exporter. The benchmark June crude palm oil contract on Bursa Malaysia Derivatives closed 0.4 percent higher at 3,340 ringgit ($1,103) a tonne. Earlier, the contract touched 3,383 ringgit, its highest level since March 22. Palm oil prices have added 2.4 percent this week. Traded volume on Friday stood at 13,951 lots of 25 tonnes each, down from 16,826 lots on Thursday.
"The market is up today on the back of the USDA report," said a trader. "Planting average for soybean is higher than the previous years. The problem is the stocks." The USDA has already forecast end-of-marketing-year corn stocks at the lowest level in 15 years, but Thursday's low quarterly stocks estimate hinted at an even tighter supply. "The USDA report on grain stocks is positive for CPO price as it suggests tighter-than-expected corn and soybean inventories," Ivy Ng Lee Fang, analyst at CIMB, said in a note. "The bullish USDA news could spill over to the palm oil market given that soybean oil and CPO are close rivals in the edible oil market," she added.
CIMB sees CPO prices as close to peaks, with no near-term catalysts for the sector. ICDX's June CPO futures contract was at 9,625 rupiah per kg, compared to 9,610 rupiah per kg when it opened. Market volume was 652 lots of 10 tonnes each. In related markets, the most active September soyoil in China's Dalian Commodity Exchange was at 10,210 yuan versus 10,228 yuan at the open.
"It's just a kneejerk reaction after the USDA report," said a Shanghai-based oil analyst. "Although traders had earlier factored in fewer planting acreage, but the lower-than-expected soybean stocks had triggered the rally." Palm oil output is moving into a higher cycle from the first quarter of 2011 after two years of weak yields and erratic weather.
Benchmark prices fell 12 percent in the first quarter, having tracked other commodities lower as unrest in the Middle East and an earthquake in Japan sent investors scrambling for perceived safe-haven assets. Higher palm oil output and the current dip in demand have pressured prices in recent months.