Live from POTS 2014 Palm Oil Conference Day 2

8:30 am: The Americas and Europe workshop.  South America is producing a lot of palm oil and the trend in oils is growing, although soy oil does seem to have the upper hand.

Russia imports most of its palm oil from Indonesia.  I'm surprised why Malaysia doesn't have a bigger market share in this region given its development of the industry here.  Seems like there is import tax on palm oil, but 20 metric tons on more, the import tax is zero.  A bigger bulk shipment gets zero tax.

Price difference between sunflower and cpo, usually has to be 70 usd per tonne or more as it influences price in order for exporters to be in the money.  Sunflower oil has large production by Russia and Ukraine

F corp group controls the port where palm oil is imported into Russia, in the Black Sea.

9:30 am: Ukraine does more exports of sunflower as Russia uses most of its sunflower oil for domestic consumption.   Sunflower and palm oil spreads can get wide as far as 300 usd per tonne.  Apparently that is where to make some money as the spread gets large.

Indonesia palm oil apparently is cheaper in the international market as market share from Malaysia is decreasing.   Despite weakness in Ukraine and Russian currency, the price per tonne of sunflower oil is still increasing.  It's especially good as Ukraine and Russian currency has dropped some 50 and 80 pct respectively.

Russia's and Ukraine's currency drop is quite drastic.  It will probably have a reduction in the country's demand. 

9:45 am: Unilever takes up 2-3 percent of palm oil production.  The way they monitor RSPO accountability is using real time satellite data to detect hotspots along with the mills that are nearby.  Seems like a reasonable way to help keep suppliers honest, and cost effective.  But critics can probably poke holes in some of the robustness of the processes of pin pointing the culprit of deforestation.

10:00 am:  Palm oil in Europe seems to have a negative perception in Norway and France.  They seem to be more concerned about the deforestation than the health issues.  Maybe palm oil should be renamed palm seed oil.  Apparently some people in Europe think palm oil comes from chopping trees down and making oil from the chopped trees.

US  concerns is more on the health issues compared to Europe.   The sustainability aspect doesn't seem to be as big a concern.  The are a net importer of vegetables.  Biodiesel use has increased but production of vegetable oil is mostly flat.  The regulatory environment isn't favorable for biodiesel with a one dollar tax credit no extended.  It seems to be in limbo.

The US apparently doesn't produce soyoil as a main product.  The production in soyoil depends on the soymeal demand for livestock.  Currently production is flat as with soymeal as livestock demand has flattened.

12:15 pm:  Africa seems like a growth opportunity but its share of palm oil imports remains small at only 1.5 million tonnes.  The middle east, including Turkey, Iran, and Iraq is more lucrative at 7.5 million tonnes, where almost all of it is imported.

12:30 pm:  China and India were talked about.  But I didn't quite get the opportunities there.  China has some problems with credit commodity traders, but it seems that is overall a small amount compared to real demand.  Bangladesh seems to import some 2 million tonnes  on its own, and criticized Malaysia on slow price quotations and pricing power.

Pakistan only imports some 20 percent of its edible oils in palm oil, so there is opportunity for growth.

Fatty acid is used in products like rubber and plastics and there is a big opportunity in those industries in China.  Palmatic acids are used mostly in household cleaning items and is an opportunity for growth.

2:35 pm:  Thomas Meilke is up from Oil World.  He says that looking at the mineral oil as a guide is a bit narrow sighted as the whole edible oil complex is huge.  He says the low is probably made in palm oil as there are other factors affecting the complex, even if mineral oil drops further.  The food consumption aspect is the main driver for price at the end of the day.

He is mentioning the same idea that soyoil production is constrained as crushers won't crush soybeans as there is little soymeal demand. 

Next issue is oilseeds.  Oilseed, namely sunflower, rapeseed, etc.  is dropping in production.  Because demand for oil is growing at 4-5 million tonnes, the actual forecast for growth this year will be at 2 million tonnes.  Putting support at these low prices.

Palm oil harvests for the end of this year and next year will likely be lower due to poor rainfall this year.    There is a lag effect to the harvests.  The current oilseed stocks are high, but is not a large portion of yearly production.  Actual oil and fat production is declining.  It seems that the stocks will be a temporary factor as it will get crushed and used up.

China demand is still fantastic and need to replenish their oil stocks.  Their demand is through the roof.  Keeping the status quo in mind for mineral oil, RM 2,200 to RM2,500 a tonne is where prices should fall within the next 12 months.

3:30 pm: Mr Benny Lee is up on a technical view of palm oil.  He noted when soyoil and palm oil spreads are small, the currency is correlated with palm oil prices more.  Prices likely bottom in 3rd quarter (aug/oct) and top out in the first quarter (feb/march).  He's looking for prices to move to RM 2,500 a tonne as long as prices do not dip past RM 2,000.

4:00 pm  Mr. Ling from Ganling sdn bhd.  New land area has slowed down since 2012.  A few reasons are environmental issues and poor agricultural land.  Indonesia is also slowing down due to a 2 year moratorium on new land for palm.  They are also facing pressures from the environmental groups.

Productivity can range from 0.5 tonnes to 5 tonnes per hectare.  Given all the land, productivity, replanting factors,  they are forecasting 77.7 mln tonnes by 2020 at a 2.7 mln tonne per year growth rate.  El nino can affect the output up to 24 months later from when the time period in question and output is affected detrimentally.

Weak El Nino doesn't seem to have a big effect on yields, but a normal El Nino drought does impact yields up to  15 percent.  Non El Nino droughts can affect yields.  The earlier drought in 2014, can affect yields in 2015.  Growth of 2.3 million tonnes in 2015 to 62 million tonnes is forecasted.  Weather is not ideal, but due to growth in land, growth in tonnes will still be positive, but slower than at ideal conditions.

5:00 pm:  James Fry from LMC International is at the podium.   Starts off with vegetable oils using Brent as a benchmark.  Brent is the floor for pricing of vegetable oils per tone.  High stocks of palm oil creates a low premium over brent crude.  Low stocks create a high premium.

The price in Rotterdam usually is at a premium over cpo in Indonesia, due to shipping and export taxes.  750 usd per tonne is when taxes trigger in Indonesia and Malaysia.

He sees crude as the most important factor, and is bearish as gulf countries have revenue targets have to be met for their budges.  Output will increase with prices below 85-95 USD a barrel.

He sees palm oil around RM 2,300 a tonne, but not much more than that due to crude oil prices.

5:40 pm:  Dorab Mistry from Goodrej International.  Palm production is not as good due to February's dry weather in Malaysia and  in Indonesia, production will be affected in the middle of 2015 due to the current dry spell in Kalimantan.

Soy produced in India is having trouble making soymeal due to demand.  Imports in oils is booming due to soybean crushing problems.  Biodiesel use of vegetable oils is mandated in 80 to 90 pct of current production.  Brazil has increased their biodiesel mandate by 1 percent.

World demand will grow about 3.5 mln tonnes due to food, and 1 mln tonnes due to biodiesel.  Predicts that RM 2,500 by March as lower stock figures come in over the coming months.