Controlled Burn – Palm and Soy Oil Demand Gain New Energy

In the two years since El Niño drought cut through South-East Asia’s palm oil region, global vegetable oil supplies have ballooned by over 10%. Growth has been led by palm oil production in Indonesia and Malaysia, where overexpansion and increases in prime yielding palm trees combined to bloat global stocks by +25% from 2016. Today, palm oil accounts for half the world’s vegetable oil stocks yet only one-third of production. Global soy oil stocks also grew last year, particularly in the US (2017/18 +16% YOY), where record amounts of soybeans were crushed for soymeal to replace Argentina’s supply shortfall.

Heavy supplies contributed to MDE Palm Oil and CBOT Soy Oil 2018 price performances (down ~15% YOY) and drove discounts to Brent to four-year lows last October. That discount has narrowed recently amid a fall in Brent and the more supportive outlook for vegetable oil remains well below the five-year average. Looking ahead for 2019, Rabobank expects a permanent price rebound from 2018 lows on the confluence of slowing production growth, export constraints, and record biodiesel demand.