Market Report – 29th June 2022

The edible oil market remains highly volatile at the moment. Palm oil has fluctuated 10% in price down and then up again in just five days.

Several key drivers are causing this.

Crude oil, after dropping sharply, prices have risen on supply worries from the USA, Saudi Arabia, Libya and Ecuador. Even news of a possible G7 deal on price caps for Russian oil has not slowed the upwards movement.

Crops and processing of palm oil has also been in the spotlight, with some Malaysian millers suspending production when Palm oil hit the $4,400 level. Rising crude oil and the cheap nature of Palm’s next biggest rival, Soya, has seen prices rally in the last couple of days. But the sentiment remains that Global economic slowdown/recession coupled with better crops of Palm oil will help push prices lower in the second half of the year.

Crude oil and how it reacts to further interest rate increases from central governments likely will be key; however, with supply tight, just how much demand will drop because of those rate rises?

Also, the G7 failed to agree to reduce the drive for Biofuels to ease inflationary pressure, which means demand for edible oils cannot fall too far. The Fitch agency expects Palm oil to fall to around just $4,000-4,400 in the second half of 2022.

Desiccated coconut has seen a significant demand increase in the last couple of weeks as buyers now look to cover out the rest of 2022. The sentiment is that major suppliers like the Philippines don’t have much lower to fall.

But with Sri Lanka now having rolling bans of petroleum sales, affecting transportation of raw materials and the buses that bring staff to work, it is feared that supply could tighten.

These cheaper mills are still dragging the market down with plentiful supply looking for buyers. However, most blue-chip food manufacturers cannot use a lot of the product from these mills (as it is either nonorganic or fully audited), so they are hunting in the market looking for supply. When the mills cannot find buyers, they drop prices even lower, pulling the rest of the market with them.

And with prices so low, it becomes no longer economical to produce desiccated, so more and more are switching to producing edible oil, looking for better margins and plentiful demand.

The reality is that supply is slowly dropping, just at the point that demand is finally picking up.