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Palm oil prices changing rapidly

Palm oil prices were very choppy last week but prices have firmed following the official November crop report from the Malaysian Palm Oil Board (MPOB). The report

was construed as supportive as it showed production coming in lower than expected, although stocks came in slightly higher than expected, due to a large fall in

exports, but still supportive. December exports have struggled, to date, but are expected to move higher this month as buyers cover ahead of the Christmas period

but also a change in Malaysian palm oil export taxes. However, there are ideas that demand is stalling as prices have rallied sharply over the past month and this has

deterred many buyers from extending cover. In normal years, November-December is a time when buyer take advantage of a seasonal fall in prices to extend cover into

the following year and this has just not happened this year. There are still questions over demand due to a series of tighter restrictions and lockdowns in many consuming

countries as world covid cases and deaths rise sharply.

The Malaysian Palm Oil Board (MPOB) estimated November production at 1,491,551, below market estimates and down 13% from 1,724,559 in October and compared to 1,538,053 in November 2019. Exports fell over 22% to 1,303,318 tonnes, down from 1,674,303 in October and compared to 1,405,638 tonnes at the same time last year. As a result,

ending stocks came in higher than expected at 1,564,505 tonne, the lowest level since June 2017 and slightly lower than 1,573,665 the previous month and more importantly, down sharply from 2,255,082 tonnes in November 2019. The market is still digesting the news that Indonesia has increased the palm oil export tax and palm export levy to

a combined $213 per tonne. Some changes were expected but the move came as a shock to the market as it will effectively put more pressure on Malaysia for palm oil (although it will also increase its export tax) and result in stocks falling from already very tight levels. The move by Indonesia is seen as a move to support its domestic biodiesel target

but as indicated in my report last week, it is highly unlikely that it will even meet its current B30 programme (30% of palm oil used in biodiesel) and let alone its B40 programme which is expected to be delayed. The main issue is the problems in production this year, however, the market is forecasting a sizable recovery in palm oil production in 2021, as analysts are saying that palm trees have rested, helped by favourable rains over the past few

months and producers are said to be paying more attention (apply more fertilisers) which should increase production. This may not kick in until the second half of the year as long as the issues around the shortage of foreign labour are resolved, as this continues to be a major constraint in Malaysia, preventing timely harvesting and resulting in losses on the plantations.

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