Feb. 5 (Bloomberg) -- Palm oil prices may get a boost from drought in Argentina, the world’s third-biggest producer of the substitute crop soybeans, and as consumers seek to cut food costs amid the worst economic slowdown in decades.
The majority of the world’s palm oil is produced in Indonesia and Malaysia and about half the soybeans usually come from Brazil and Argentina, according to Citigroup Inc.
The CHART OF THE DAY shows the premium of soybean oil over palm has narrowed, even as palm oil stockpiles reached a record. During previous increases in inventories, the spread widened. This time, palm oil prices may rise even as output increases.
“The gap could narrow further as we expect consumers to continue to react to the price competitiveness,” Citigroup analyst Penny Yaw wrote in a report, which highlighted Malaysian producers including IOI Corp. and Kuala Lumpur Kepong Bhd. The average spread since the 1980s was $107 per metric ton, Citi said. That compares with the high of $494 on Aug. 26 and about $200 now, data compiled by Bloomberg show.
Malaysian palm oil futures have gained 9 percent this year to 1,845 ringgit ($509) a ton, after posting their biggest decline in almost a decade in 2008. The government forecasts record production of 18 million tons in 2009, 2.9 percent more than last year. The Indonesian Palm Oil Association said output of the food and fuel additive there will be 20 million tons.
Soybean oil is down 2.8 percent this year on the Chicago Board of Trade. Argentina and Brazil both cut soybean output forecasts citing drought and heat, Yaw wrote Feb. 2.
To contact the reporter on this story: Lee J. Miller in Bangkok at lmiller@bloomberg.net
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