MPOB report will provide lead on crude palm oil futures

OBSERVATIONS: Encouraged by the surge on the US soyabean oil futures market and the bullish backdrop of world commodity and equity markets overall, the Kuala Lumpur CPO futures market jumped to high ground not seen in the last nine months.

And there could be a lot more encouragement from palm oil’s principal competitor in world edible oil markets, if the reported strong demand for US and Argentine soyabeans, especially from China and the tight supply situation is any guide.

That’s because even with strong global demand for soyabeans, soyabean oil still has a lot of catching up to do if it is to match palm oil’s price ascent this year.

Settling at RM2,680 a tonne last Friday, the benchmark July 2009 CPO futures contract was up RM85 or 3.58 per cent over the week. But since the start of this year the benchmark CPO futures contract has soared 58 per cent. The benchmark US soyabean oil futures actively-traded July 2009 contract, which settled at US$0.3961 (RM1.3982) a pound last Friday was, by contrast, up a comparatively low 18.98 per cent thus far this year.

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The difference in the year-to-date performance of the world’s top two edible oils is the reason the discount of palm oil to soyabean oil has dropped to 11 per cent. The palm oil-soyabean oil discount was more than 40 per cent in the heady days in March 2008 when palm oil surged to a record high above RM4,300 a tonne and soyabean oil topped US$0.70 (RM2.47) a pound.

Conclusion: The Malaysian Palm Oil Board (MPOB) report, which should be public knowledge today, will be a major determinant in the immediate direction of palm oil.

If, as market participants and the industry expect, end-April 2009 stocks drop to 1.2 million tonnes, from 1.36 million tonnes a month earlier, then the bulls are in luck.

But any disappointment on that score could see this technically-overbought market beat a quick retreat.