Sipef revealed it has slowed down palm oil sales in expectation of the recovery in prices continuing into next year, forecasting some improvement in values of rubber too.
The bananas-to-tea plantations group said that, after selling forward as of August 79% of its forward 2014 palm oil volumes, “anticipating price pressure on market”, it had hedged only a further 10% since.
The strategy has left it with 11% of its production yet to price, compared with unfulfilled sales of just 2% a year ago.
The policy of holding back sales, even as palm oil futures prices recovered in the Kuala Lumpur futures market from a five-year low of 1,914 ringgit a tonne in early September to 2,162 ringgit a tonne today, reflected Sipef’s expectations of a rise in values ahead.
‘Further reduction of yields’
While acknowledging the dent from weak crude oil prices to prospects for palm oil, much of which is used to make biodiesel, Sipef flagged the potential for government action to support consumption.
In Indonesia, the top palm producing country, “it is expected that the government will do its best to enforce the 10% biodiesel blending mandate, and hence stimulate prices, because at current levels they will miss out on the export tax income.”
Low values of the vegetable oil have triggered a reduction from 9% to zero in Indonesian export taxes.
Meanwhile, there are growing ideas that output in Indonesia and Malaysia, the second-ranked producer, may have peaked early, in August, beginning early a seasonal downswing in output.
“The September production decreased almost 7% in comparison to August, which is unusual because September and October are normally the peak production months,” Sipef said.
“So far the signals are showing a further reduction of yields during this month.”
‘Production peak was very early’
The yield downturn “could certainly imply that the peak was very early this year, coming in August, and a new down cycle has started,” the group said.
“Clearly the dry spell of February and March earlier this year had an impact” on oil palm trees, with many analysts citing some recent dryness as holding back yields too.
The dynamics mean that “stocks are likely to remain stable till the end of the year, but certainly drop significantly during the first quarter of 2015”, Sipef said.
“We are confident that we saw the lows in the [palm oil] markets in early September and expect prices to gradually increase into 2015”.
Rubber price prospects
The group also forecast that rubber prices “will appreciate in the coming months”, extending a revival which has seen futures in Tokyo revive 13.7% from a five-year low of 173.80 yen a kilogramme set three weeks ago to reach 197.60 a kilogramme on Thursday.
Traders have attributed the recovery to hopes for China’s economy, at time of some eroding expectations for, ample, rubber supplies, with Malaysia forecasting a 10% drop in output this year.
Stocks for delivery against Tokyo futures were, as of October 10, at 12,528 tonnes, down 9.9% in 10 days, and 22% since the end of August.
Sipef, which has sold 94% of its rubber volumes, in line with last year, added that “Chinese stocks have gradually dropped to acceptable levels, and car sales globally have been good.
“The current low prices are stimulating a lot of forward covering.”
Price moves
Shares in Sipef, which restated a forecast of “higher” profits this year than in 2013, rose 1.7% to E53.63 in morning deals in Brussels.
Palm oil futures stood 1.4% higher at 2,165 ringgit a tonne in late deals in Kuala Lumpur.
– AgriMoney
