Tight soybean supply, La Nina to disrupt Q1 palm oil prices

Global palm oil prices are expected to remain firm in the first quarter of 2021 as supply will only recover later in the year, meaning price volatility will be at the mercy of La Nina weather and its impact on South American soybean crops, two leading analysts said at an online conference on Thursday.

An ongoing labour shortage and weather problems in Southeast Asia have caused Malaysian palm oil inventories to shrink to their lowest in over three years and lifted Malaysian palm oil futures to their highest in nearly a decade this Wednesday at MYR3,877/mt ($966.83/mt).

Palm oil prices could be further boosted over the next months by the tightening global supply of soybean and soyoil caused by the drought effect of the La Nina on the maturing soybean crops in Argentina, Brazil and Paraguay.

“The shortages and tight situation in palm, the worst is over. The market to watch now is the soybean weather and market,” Dorab Mistry, director of Godrej International said.

“The drought in South America will become the price propellant,” Mistry told the Palm Oil Trade Fair and Seminar (POTS Digital) 2021 on Thursday, adding that soyoil will become “the price leader because of the tail effects of the La Nina.”

“If we lose 20 million mt [of soybeans] in South America, I’m sure CBOT beanoil futures would go to 45 ct/lb or higher and beans will trade at $14/bu or even higher”.

After topping the 44 ct/lb mark on Wednesday, CBOT soyoil futures slipped on Thursday and were trading at 43.25 ct/lb on the March position while soybean futures were trading lower at $13.45/bu.

Mistry expects volatile price movements over the next three months with price moderation only coming after May once palm oil production in Indonesia and Malaysia will seasonally pick up followed by potential “dramatic falls”.

Mistry’s view was echoed by Thomas Mielke, chief executive officer of Oil World, who said that global soybean stocks are set to shrink for a second straight year in 2020/21 in part due drought in Argentina and Brazil.

“Unusual dryness in September to December have sharply damaged soybean crops in South America,” he warned, adding that Oil World’s Latin America’s soybean crop forecasts is 16 million mt below current market forecast.

Oil World expects Brazil to harvest 128 million mt of beans, and Argentina 46 million mt, compared to the USDA’s current forecast of 133 million and 51 million, respectively.

“South American weather remains a major uncertainty to watch,” Mielke concluded.