Palm oil prices near record highs as Soyoil takes the lead -Braun
Palm oil is not the cheapest oil in the world, despite being the most abundant vegetable oil. Supply concerns have driven up the price by almost 30% this year.
Prices for soybean oil, a rival product, have fallen by more than 11 % this year due to record global soybean production.
In recent weeks, this has led to a near-record discount in palm oil compared to soybean oil.
Palm oil makes up about 40% of the global production of major vegetable oils, including rapeseed, sunflower, and soybean oil. Palm oil is therefore almost always cheaper than soya oil. The average discount in the past decade was $170 per ton.
On Monday, the benchmark Malaysian palm futures were $145 per ton more expensive than the most active Chicago soybean oil futures. This was palm's highest premium in decades.
Three months ago, palm oil became more expensive than soya oil. Since then, the price premium has increased, partly due to a drop in production by top producer Indonesia.
Palm oil can be found in many products, including soaps, cooking oils and chocolate. It is also increasingly being used as an additive to biofuels, especially in the countries that produce most of it, resulting in a tightening of exportable supplies.
Palm is harvested all year round, unlike soybeans, which are only planted every six-months. This means that problems with palm production can take several months to fix.
It is rare that palm oil can maintain a price premium over soy oil. This was the longest period of time, lasting about 10 months from 1998 to 1999. It was linked to a reduced palm production due 1997-1998 El Nino.
The two-country palm oil supply system leaves little room for error. Malaysia and Indonesia account for 83% of world production and 86% of exports.
Argentina and Brazil, the top two soy oil exporters, account for 58% global shipments despite producing only 29% of world production annually. China and the United States account for 47% of the global soy oil market.
In the past decade, the United States was a major exporter of soy oil. However, the surge in prices due to the biofuels policy halted shipments about two years ago. U.S. exports of soy oil are at their highest level in four years, possibly due to the price dynamics between palm and soy oils.
Rapeseed oil and sunflower oil are expected to decrease globally during the 2024-25 season. This means that the palm oil shortage could temporarily push soybean oil into the spotlight, and limit the risk of a price drop. Karen Braun is an analyst at. The views expressed are Karen Braun's.
(source: Reuters)
