Soyoil assumes power position as palm oil prices reach near-record premium -Braun
Repeats column first published on Tuesday. The opinions expressed here are those of the author, a market analyst for Reuters.
By Karen Braun
NAPERVILLE, Illinois, Nov 26 (Reuters) -Despite its status as the world's most plentiful vegetable oil, palm oil is no longer the cheapest, as supply concerns have pushed up prices by nearly 30% this year.
Meanwhile, prices for rival soybean oil have declined more than 11% so far this year, driven by record global soybean output.
This has set up a rare discount of soybean oil to palm oil, which has accelerated to near-record levels in recent weeks.
Palm oil accounts for about 40% of global output of major vegoils, which include rapeseed and sunflower oil, while soybean oil claims a one-third share. Therefore, palm oil is almost always cheaper than soybean oil, and the average discount over the last decade was around $170 per metric ton.
But on Monday, benchmark Malaysian palm oil futures FCPOc3 were about $145 more expensive per ton than most-active Chicago soybean oil futures BOv1, marking palm’s steepest premium versus soyoil in decades.
Palm oil grabbed the vegoil market’s attention three months ago when it became pricier than soy oil, and the premium has only escalated since, owing partly to an output skid in top producer Indonesia.
Palm oil is found in a wide range of products including cooking oil, soaps and chocolate. But it has also been increasingly used as a biofuel additive, particularly in the top producing countries, tightening exportable supply.
Unlike soybeans which are planted every six months, palm is harvested year-round, meaning that palm production problems can take many months to correct.
The recent price inversion may eventually correct, however, since it is very rare for palm oil to sustain a premium to soy oil. The longest such span was about 10 months between 1998 and 1999, linked to reduced palm output off the 1997-98 El Nino.
Palm oil’s two-country supply setup does not leave much room for error. Malaysia and Indonesia contribute 83% of the world’s production, and the two countries account for 86% of global exports.
Top-two soy oil exporters Argentina and Brazil account for 58% of global shipments, though they produce only 29% of the world’s annual output. China and the United States are the top two soy oil producers, accounting for a combined 47% of market share.
The United States had been a key soy oil exporter within the last decade, but the biofuel policy-related surge in domestic prices choked off shipments two years ago. U.S. soy oil export sales now stand at four-year highs for the date, perhaps related to the palm-soy oil price dynamic.
Both rapeseed and sunflower oil production are projected to shrink globally in the 2024-25 season, meaning that the palm oil supply squeeze could at least temporarily thrust soybean oil further into the global spotlight and potentially limit downside price risk.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Graphic- Soybean oil to Palm oil futures spread https://tmsnrt.rs/4i4PSCl
Writing by Karen Braun
Editing by Matthew Lewis
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