Malaysian palm oil prices jump on lower output expectations

Malaysian palm oil futures at the Bursa Malaysia jumped in late July, testing new highs on the back of lower production expectations for the month amid lower yields and labour shortages, industry sources told Agricensus.  

The most liquid October contract closed at MYR 4,422/mt ($1,044.8/mt) on July 27, up 0.9% on the prior day and the highest level since May 19.

The settle was only 82 points below the record high reached on May 12.

“CPO futures are racing higher and faster, mainly due to lower than expected production estimates for July and the extension to lower production outlook for the year,” Sathia Varqa, owner and co-founder at Palm Oil Analytics, said to Agricensus.

“Sharp increases in soyoil on CBOT and palm olein traded triple-digit high is helping to sustain the elevated crude palm oil prices,” Varqa added.

Fundamentals igniting prices

Malaysian palm oil production for July is expected to be lower on the month on lower oil yields and labour shortages at palm plantations.

Furthermore, industry analysts are also expecting a decline in ending stocks for July, after rising for four consecutive months, maintaining the bullish momentum on prices.

Crude palm oil output for the first six months of this year is already 8% down on the same time last year, with steep output declines seen in the past three months, according to data from the Malaysian Palm Oil Board (MPOB).  

“Analysts are likely to revise their 2021 production estimates lower, and Malaysia could potentially see the lowest annual output since 2017,” Varqa told Agricensus.

Palm Oil Analytics has already revised its crude palm oil production for 2021 lower, expecting it to come in within the range of 18.5-18.7 million mt, down from 19 million mt originally.

If realised, this would be down between 2.3-3.3% on 2020.

“Palm oil production will be under earlier estimates of 19.2 to now firmly under 19.0m,” a second industry source told Agricensus.

The USDA forecast Malaysian crude palm oil production at 19.7 million mt in 2021, at an increase of 8% on the year.