Some leading palm oil price determining factors in 2023 - POC conference presentations | POC 2023

  1. El Niño and its impact on production—sentiment and actual—Forecast of severe drought to hit key oil palm areas from the second half of the year will see output from Malaysia and Indonesia be badly affected in 2024. However, prices will start to react to the El Niño weather events from June of this year based on lower supply sentiment.
  2. Argentina soybean harvest loss– Production for 2022-23 is widely expected to be lower due to insufficient rainfall during the blooming season with the latest USDA data projecting 33 million tons from 41 million in the previous month’s report. Some analysts are projecting lower than 30 million tons. The actual volume will be known after the harvest is complete in June. Argentina is the world’s largest bean oil exporter in the world. The losses are not fully priced into soybean oil on CBOT which can set the tone for palm oil prices.
  3. Malaysia and Indonesia palm production—Malaysia’s production is seen at 19 million tons at best. Indonesia’s output is a little unclear with a 1.90 million tons increase to 47.70 million while GAPKI predicts a decline in output for 2023 from reduced fertilizer use among smallholders in 2022 and from adverse weather.
  4. Indonesia’s government DMO and DPO policy—Domestic Market Obligation supply of 450,000 tons of cooking oil a month sold at a Domestic Price Obligation of Rp. 14,000/liter is the target set by the government. The expectation is the DMO ratio of the current 1:6 will be relaxed after the Eid festival in April. Any sign of insufficiency of domestic supply and higher prices could trigger export restrictions offering a boost to Malaysian exports and CPO futures pricing.
  5. Indonesia biodiesel mandates—There is little conviction in the market that the B35 biodiesel mandate and increases from B30 is adopted nationally. A delayed adoption will still absorb around 12 million tons of CPO out of the export market offering greater Malaysia export prospects.