Malaysian Palm Oil Demand Drop Risk

[errolanderson]

Group . . . Malaysian palm oil prices have been under significant pressure since April dropping nearly 20%.

Malaysia is the 2nd largest producer with Indonesia the largest. Palm is the most used veg oil in the world.

Bring this to your attention as palm oil prices have a significant impact on global canola values. Malaysian palm production is actually forcast to drop about 2% to 18.6 MMT and yet prices continue to drop. This is worrisome. Why? The recession in both Europe and China is now taking a huge toll on palm oil demand.

Some Malalysian analsyts suggest a further 10% drop in palm prices into the new year. What could derail these forecasts is if Bernenke unleashes QE3.

To me, QE3 is nothing more than a temporary band-aid at best. How many times can Bernanke call 'wolf' by printing money with no actual wealth generating capacity? Trying to inflate ourselves out of this global mess is a huge mistake in my opinion. (I am now venting by this excessive central bank control may actually making long-term recovery a bigger stretch). This global crisis is simply far greater than any recessions of the past. Keynesian economics of trying to inflate our way out of this out of control debt problem won't work (IMO).

This international veg oil competition suggests to me that canola prices may have peaked last week. That's my opinion looking at the current global veg oil market. But U.S. Fed intervention is now the wildcard. Bernanke may panic soon or be pressured by Wall Street.

Realize that boo birds are going to come out-of-the-woodwork with this post. But, so be it. Saskatchewan weather will have little impact on this global event.

How this will impact canola in the months ahead is unknown, but feel you should be aware of what a major competitor in the global veg oil market may be facing heading into 2013.

Errol

[cottonpicken]

I'm sorry but if you were not pushing commodities
and commodity related investments ten years
ago...sit the **** down and shut up.

You and many others do not understand economics.

[cottonpicken]

You want to see the the reality here it is

http://www.youtube.com/watch?v=5V3kpKzd-Yw

[BreadWinner]

The way I see it, food is going to be short this
year so if countries want their citizens to eat their
going to have to pay for it! If they don't pay they
starve simple. I'm sure not going to give mine
away just because they want it cheap. I'm sure
these palm oil producers won't give it away either.

[charliep]

I'll take you up on your challenge. Why hasn't
soybean oil joined the rally of the rest of the
commodities? Your answer can be based on the
fundamentals or technical .

I almost sense panic in your posting. Someone who
long and wrong.

[LWeber]

http://www.bloomberg.com/news/2012-07-25/mr-titanic-mistry-predicts-sinking-palm-oil-prices-commodities.html

[perfecho]

Heard a report the other day that world production of corn etc, is as usual...just in different parts of the world than we are normally used to. The prices jumps were due to speculators and brokers etc. No time to research, but time will tell.

[MarshallDillon]

Where is the moderator? Cotton's language is pretty much unacceptable. If Agri-ville wants to be shut down, keep going!

[LWeber]

Dorab's speech in Beijing - March 27th
Emailed to me March 26th:

Ladies and Gentlemen
I am delighted to speak once again in this great city of Beijing at the 9th International Conference hosted by China Cereals & Oils Business Net. I also congratulate my friends at the Dalian Commodity Exchange and at Bursa Malaysia on their efforts to expand the futures market for palm oil. Bursa Malaysia is embarking upon some new exciting products in the form of Options on futures. And I appreciate the sterling work done by MPOB and MPOC in China.

Background

At my last paper in China in November 2011 at the CIOC in Guangzhou, mine was almost a lone bullish voice. Most of the analysts and speakers were bearish and some were extremely bearish. Planting intentions were extrapolated with projected yields and massive ending stocks were calculated. What we sometimes forget is that the crop has not even been planted and there remains a lot of uncertainty. This is what has happened in South America this season. In southern Brazil, the La Nina induced drought has reduced the crop in some districts to just half of its potential. We have lost almost 25 million tonnes of beans and we are going to have the tightest ever stocks- to- usage ratio in many years.
New factors in the PALM market
I shall keep referring to my recent paper at the Price Outlook Conference in Kuala Lumpur on 7 March 2012. As you will recall, I emphasized that in 2012, the most important factor will be the flat or unchanged production of palm oil in Malaysia. I estimated Malaysian production at between 18.6 and 19 million tonnes. My estimate for Indonesia was 26.5 million tonnes, an increase of only 1.4 million tonnes. Overall, world production of palm oil would expand in 2012 by only 2 million tonnes as against expansion of almost 5.5 million tonnes in 2011.
Production of palm oil in Malaysia as well as Indonesia in Jan and Feb has fallen slightly short of my projections so far. Reports of March production are also not encouraging. As I have earlier pointed out, CPO production in the first half of 2012 will be LOWER than it was in the first half of 2011.

This year the festival of RAMZAN will be earlier than usual. June will be the peak month for RAMZAN demand. Therefore, demand for palm oil will be greatest just when production will not have had time to recover. We are likely to see very tight stocks and a run up in prices so as to ration demand.

The only other update I need to make is the prospect of Thailand joining the importing countries at this stage. Demand for palm oil will be strong in Europe due to the very high price of ****seed oil. There are reports that **** bio diesel has become uncompetitive and this opens more scope for soya and palm bio diesel to be shipped to Europe.

One other relevant factor is the new Export Tax regime in Indonesia. This had led to loss of business for Malaysian refiners. Some stand- alone refiners in Malaysia are having a tough time and may not be able to continue their operations in the face of chronic negative margins. The development of the recent 2 weeks suggests that the availability of Indonesian refined products is getting tighter and therefore, Malaysian refiners may once again get a chance to be competitive. In the meantime, the Malaysian government will be waiting and watching before it decides what it should do to counter the Indonesian move.

As I forecast at POC in Kuala Lumpur, so far the Indian government has done nothing in terms of raising the Tariff Value of RBD Olein to help its domestic refining industry. With prices now rising, it seems unlikely India will do anything that causes further food price inflation.

INDIA
Whilst we are on the subject of India, I may add that I stand by my estimate that India’s current ****seed crop is around 5.3 to 5.8 million tonnes only. Prices of ****seed and of mustard oil are very high and these appear to justify my crop estimate. It also means Indian imports of soya oil from Argentina will be higher than I had estimated.

SOYA
In the last 2 weeks we have seen further deterioration in the soybean crop in Brazil and to a small extent in Argentina. This development is in line with our expectations. So far this season, demand for soya oil has not been so buoyant because sun oil has been available at a discount. Export demand for soya bio diesel has been good so far. As winter sets in there should also be good demand for soya bio diesel from domestic users due to energy shortages and the fact that soya bio diesel is quite competitive with imported fossil diesel after payment of import duty.
The most important new development in soya in recent 2 weeks has been the Battle for Acreage in USA. My own forecast is that US farmers will plant more corn if the weather remains dry and warm as at present. Corn is a very reliable crop, prices are high and so very profitable and it gives them a safety factor. Corn is planted first and harvested much earlier thus narrowing the risk window. It is quite possible that US farmers will plant the expected 95 million acres to corn and this will leave soybean acreage for 2012 unchanged or very slightly higher. The fact is that in 2012, we need US farmers to plant at least 3 to 4 million EXTRA acres to soybeans and for yields to be in line with trend in order to bring us a big crop. This seems almost impossible if planting conditions in March and April are very good and corn steals acres from beans.
The forthcoming USDA report on Planting Intentions will not say the last word on this Battle for Acres. Some farmers will make up their minds very late and many will look at planting weather in order to decide. This period from now until the end of May promises to be extremely exciting. As it is often said “Markets like to climb a wall of fear”. It is quite possible that we see new highs for beans well before the planting season is over.

****SEED
The latest news from Canada tells us that Canola plantings will be higher than last year by almost 15%. In Canada as in northern USA, we have at present good warm temperatures and dry weather. These are almost ideal conditions for planting. Hence we are likely to see big plantings of Canola. So far, this possibility has not affected Canola seed prices and these have been very strong. In the EU we are not sure yet how much winter kill has taken place. In recent days we are hearing of another emerging problem of dryness in several parts of Europe, particularly in France, Germany, UK and Spain. Rainfall during this winter has been in some parts very scarce. We need to keep a close watch on spring rainfall in Europe and especially in the UK. Demand for ****seed has been buoyant though current high prices may hurt demand and may create openings for palm oil.

SUNSEED
The prospects for another big season of Sunflower seed plantings in Ukraine and Russia are very bright. Plantings will be equal to or higher than last year. It remains to be seen if yields will also be good and if the overall crops will be higher. I repeat that sunflower seed is a fragile crop and does not consistently repeat good yields. Weather and dryness over Ukraine and South West Russia also needs to be watched. Sun oil demand from its traditional markets of Egypt, Middle East as well as Europe will remain strong if it remains at a discount to soya oil. India will expand its imports of sun oil further in 2012.

COTTONSEED & GROUNDNUT
Cottonseed oil production in 2012 will be higher by about half a million tonnes on account of higher cottonseed production in the previous year.
COCONUT OIL & PALM KERNEL OIL
At last we are seeing some small improvement in the supply of Coconut oil in the Philippines. Unfortunately, palm kernel oil supply will only rise in a limited manner due it being a by-product of palm.

Incremental Demand
The prospects for the world economy have definitely improved in the last few weeks. I am therefore confident that Food Demand will expand by at least 3 million tonnes this year. We must remember that consumption is strong in most of the emerging markets where economic growth and rising living standards are also helped with population growth.
On bio diesel there has been some discussion lately if my estimate of growth in bio diesel demand in 2012 will be 3 million tonnes. For the present I have no reason to doubt this figure. I am advised that in USA, the monthly production of bio diesel will more or less follow the trend of 2011. It will gradually rise in the second half of the year.
There is one other factor I wish to point out and that is the buoyancy in crude oil prices. For whatever reason, the fact that the US President was even considering a release of crude oil stocks from the Strategic Petroleum Reserve is a bullish signal for crude oil prices. As a result, bio diesel demand and production will be under-pinned. I am keeping intact my forecast that world bio diesel demand will rise by 3 million tonnes in 2012.
CHINA
It is impossible to project world demand without analysing China. I remain bullish on China for 2012. The government has done an extremely good job in taming food price inflation. The time has now come for China to once again stimulate growth. To my mind, China will soon have new political leaders and it will fall on them to make new decisions about the economy. The outgoing leaders are rightly leaving such matters to be handled by their successors. Therefore we must be patient. We must await some growth oriented measures to be undertaken after the new leaders have taken office.
On the other hand, the current very strong prices of corn in China are telling us that consumption remains strong. On vegetable oil we see high stocks and negative parity for imports. There are good local domestic reasons for this. The evidence of the last 12 months suggests that high stocks and negative parity have not affected the combined imports of oilseeds and oil in total. China imports more oilseeds or more oil depending on its domestic crush economics. These factors will normalise if domestic interest rates are allowed to decline and liquidity is made easier once again. This is a matter of time and we must remain optimistic. China has a superb record of growth over the last 25 years and therefore we must have confidence in its ability to keep up and maintain this high level of growth. This year’s projections so far tempt me to say that perhaps the Chinese are under-promising with a view to over-performing!

We can now summarise the Global Incremental S&Ds as follows
000 tonnes Oct 10 to Sept 11 Oct 11 to Sept 12
Soya oil 1,800 800
**** oil - 500 ------
Sun oil 800 1,800
Gn & Cttn oil 500 400
Palm oil 5,500 2,000
Lauric oils 350 300
Total Supply Increase 8,450 5,300

Total Demand Increase 6,500 6,000

It can be seen that the big difference in the current year is in palm oil. Last year there was a clear surplus of Incremental Supply over Incremental Demand. This year the two are almost in balance.

Acute tightness in the first half?
The main point to note is that the above S&Ds are based on a presumption of normal weather. Any weather problem will reduce supply. It must also be pointed out that over the course of the full year, supply and demand are in balance. However, in the first half of the year, until June 2012, the supply side is weak whilst demand will be strong. The Muslim religious month of Ramzan will be early this year and all Ramzan related shipments will have to go out in June.

Round Table on Sustainable Palm Oil

I am delighted to say that RSPO is going from strength to strength and more and more end users and processors are switching to RSPO Certified Sustainable Palm Oil.

PRICE OUTLOOK
My most important assumptions are that the world economy will grow by 3 % in 2012. I also assume that Brent crude oil will trade between US$ 105 and $ 120 per barrel. I do not expect the U S Dollar to be strong until about November 2012.

What are the threats to this forecast?
The threat of Contagion is the most prominent. If the Euro zone is affected by a default or if the Euro collapses, it will pull down all commodity prices
Demand from Investors
In recent weeks we have seen the exit of interest and excitement from precious metals. Gold and Silver prices have fallen below certain technical indicators and their immediate outlook has dimmed. Traditionally Gold attracts the maximum amount of investment funds. If these funds are to find a new home, it has be Agricultural commodities or Equities. The recent rise in open interest in most agricultural futures may be proof of that shift in investment demand.
Within these caveats my price outlook is as follows:

PALM – I am happy to repeat my recent price forecast for CPO futures on the BMD to rise to 4000 Ringgits or about US$ 1250 FOB by the end of June 2012. After that we may see a correction of no more than 200 Ringgits. CPO will trade in a range of US$ 1150 to 1200 FOB. Prices can fall only if palm oil production shows firm evidence of a pick- up from November onwards.
Soybean oil – There is a question about new bio diesel mandates in Brazil and Argentina this year. Both countries are suffering from energy shortages in the next few months as they have winter weather. I expect crude degummed soya oil to rise in price to about US$ 1300 FOB. I expect soya oil futures in Chicago to trade up to 60 cents and I expect soybeans to scale to US$ 15 per bushel. We must brace ourselves for very active markets after the USDA Planting Intentions Report of 30 March. We are going to have a great weather market in the soya and corn complex this year.

Sunflower oil will be the only vegetable oil in surplus and it will continue to trade at a discount to soya oil. As I pointed out at POC in Kuala Lumpur, I expect Indian imports of sunflower oil to exceed 1 million tonnes this year and to overtake the import of soya oil. China will also discover the advantages of sunflower oil.

****seed and Canola production remains a big swing factor this year. If we have big Canola plantings and a big Canola crop, we can see **** oil trading at a small premium to soya oil. Otherwise that premium will remain wide as at present and **** oil will lose its lucrative markets in USA.

I expect Palm Kernel oil to trade higher from current levels and rise to US$ 1700 CIF Rotterdam. Coconut oil should trade at a discount and reach US$ 1500 CIF Rotterdam.

Conclusion
China will continue to be the critical factor in 2012, along with Palm oil production. For me it is a matter of great joy to be here in Beijing thanks to Kingrain High Technology Company and I wish them well for the future.
I wish my friends in the China crushing and refining industry better margins and prosperity. Finally, I wish you all a good, successful and bullish outlook.
Good Luck and God Bless

[wd9]

Um maybe because Palm is high in saturated
fat and use is down because of that? You
can't dump all those sats into food today
without huge label affects. Its a food
processing reality.

[errolanderson]

Interesting developments this morning.

There appeared to be near panic in
Europe overnight on ideas that Spain
will need a larger banking sector
bailout. Also, there was another rise in
Italian bond yields. This appeared to
prompt ECB President Draghi to state
that the ECB would do "whatever it
takes" to preserve the Euro.

This statement transpired to rally the
Euro this morning and along with it the
loonie, while pressuring the U.S.
dollar. This appears to be a 'risk on'
day, but there is rain in the states
pressuring soybeans.

But to me, this ECB action is showing
the desperation in these central bankers
right now to try to figure out a way to
stimulate growth.

Errol

[oneoff]

Ya the panic is on; and some will be spreading it; most will carry on as if all is well.

And we might as well be oblivious or optimistic n our own way.
I'm going to weigh in on the side of cottonpicken. Its just the direction we are headed is completely out of the control of anyone who might have some answers for the faulty borrowing and debt that we have allowed to spiral out of control.

There is just too much demand for all forms of limited resources and a population growth and expectations that just can't be sustainable, longterm.

There will be days of reckoning in the future; and the hints we see today are not being taken seriously enough.

Errol's comments don't deserve an ounce more weight than anyone else's take on our pilotless boat.

[TOM4CWB]

WD9,

I agree on the saturated fat and palm oil prices.

Here is an update on where the excess funds are going.... from quantitative easing:

ANALYSIS-Tax haven clampdown yields cash but secrecy still thrives

Credit Suisse Group AG
CSGN.VX
CHF16.24
0.15 0.93%
19:15:45 IDT
UBS AG
UBSN.VX
CHF10.30
0.24 2.39%
19:15:42 IDT
Thu Jul 26, 2012 2:23pm IST


* Official queries $21-$32 trillion haven estimate

* OECD has no "magic number" for offshore tax evasion

* System too complex to be workable -accountant

* Tax authorities crack down

By Chris Vellacott and Sinead Cruise

LONDON, July 26 (Reuters) - A global campaign to tax trillions of dollars hidden in offshore tax havens has made revolutionary progress, an official leading the drive said, rejecting suggestions that the super rich are running rings around Western authorities.

Pascal Saint-Amans, director of a unit at the Organisation for Economic Cooperation and Development, also cast doubt on estimates that the havens are illicitly sheltering wealth equivalent to several hundred times the fortune of Bill Gates.

Leaders of the G20 group of leading Western and developing nations launched the campaign three years ago, aiming to claw back billions in lost tax revenue at a time when many governments are trying to cut huge budget deficits.

Saint-Amans said his gut feeling was that before the G20's initiative at its 2009 London summit, people could hide their wealth in offshore havens without any risk of legal reprisals.

"Now you are at risk and that’s a major change. That’s a revolution," Paris-based Saint-Amans told Reuters in a telephone interview. Even if money is transferred abroad, rules improving transparency have made it easier for the taxman to find it, said Saint-Amans, whose unit is tasked with leading the Western efforts to fight tax evasion.

The Tax Justice Network, a campaign group, estimated last weekend that as much as $21 to $32 trillion of financial assets are sheltered in offshore tax havens, representing up to $280 billion in lost income tax.

That total wealth would dwarf the fortune of Microsoft Corp cofounder and philanthropist Bill Gates. In March Forbes magazine ranked Gates second on its global rich list with total wealth of a mere $61 billion. [ID:nL2E8E78DB]

Saint-Amans suggested the TJN estimates might be overstated. "I was wondering where the equivalent of 450 Bill Gates are hiding from everyone. It looks like the equivalent 20,000 unknown billionaires in the world or 200,000 people with net worth of 100 million," he said.

The Scorpio Partnership, a consultancy that analyses the global private wealth management industry, estimates the amount of money held offshore by people worth at least $1 million at a more modest $8-$9 trillion.

NO MAGIC NUMBER

Saint-Amans, who heads the OECD's Centre for Tax Policy and Administration, acknowledged his organisation makes no equivalent estimate. "I would rather spend the resource improving the legal framework and putting an end to loopholes than trying to find the magic number," he said.

In a statement accompanying its research, TJN criticised the OECD and other international bodies for not doing enough to track offshore wealth, saying it was scandalous that institutions devoted so little research to the issue.

G20 leaders agreed at their London summit to crack down on tax evasion and banking secrecy, and asked the OECD to publish lists of tax havens according to how cooperative authorities there are on releasing information about offshore wealth holdings.

There are now 89 countries on the OECD's "white list" of jurisdictions that have implemented internationally agreed tax standards. These jurisdictions have between them signed more than 800 agreements on exchanging information with authorities other countries, Saint-Amans said.

"Until 2009, countries said being secretive is justified and fair. The change in the world is nobody says that any more, so that is a big change," he said.

Western tax authorities have individually stepped up efforts to net more money hidden abroad by their own citizens through a series of amnesties targeting people with accounts in jurisdictions such as Switzerland and Liechtenstein.

At the same time they have turned up the heat on citizens suspected of tax evasion. This has included using details of Swiss accounts originally stolen from HSBC by a former IT employee that found their way into the hands of tax authorities around Europe. [ID:nL5E7LD1Y2}

Britain's HMRC tax office expects an amnesty offering leniency to people with accounts in Liechtenstein if they come clean to raise about 3 billion pounds, while a similar deal on Swiss accounts will bring in up to 7 billion pounds.

Campaigners argue that such initiatives will achieve only limited success because a financial industry designed to ensure confidentiality across multiple jurisdictions makes it impossible to shut down tax fraud or money laundering.

"Anybody who’s serious about holding money offshore ... will hold it through a trust," said Richard Murphy, a chartered accountant and director of Tax Research, a think-tank.

"You’d have the trust in one territory, the company in another territory, its directors in another territory and its bank account in a fourth territory. So making an application for information is not very simple."

TOO COMPLEX TO BE WORKABLE

Murphy dismissed the OECD's progress in cracking down on tax havens, arguing that implementation of information exchange between territories is limited in practice and the process too complex to be workable.

"They’ve set up a system where it’s virtually impossible to apply for information ... The OECD claiming they are making progress is like checking the stable door has been shut way after the horse bolted. Not just the horse, the entire stable has bolted," he said.

The TJN research on offshore wealth - authored by James Henry, a former chief economist at consultant McKinsey & Co - highlights the "often unsavoury role" played by banks in catering to rich individuals who want to hide money offshore.

Large private banks with offshore businesses reject the idea they aid tax evasion.

"Our Code of Conduct explicitly says not to assist clients in activities intended to breach their tax obligations," said a spokesman for Swiss bank Credit Suisse (CSGN.VX) who declined to comment specifically on the contents of the TJN report

But recent crackdowns by tax authorities in countries such as Britain, the United States and Germany have proved embarrassing for Swiss banks.

German tax authorities are investigating roughly 5,000 German clients of Credit Suisse while French officials have searched the homes of UBS (UBSN.VX) employees. [ID:nL6E8IB7FC]

At least 11 Swiss banks suspected of helping wealthy American clients dodge taxes are currently subject to a U.S. investigation. [ID:nL6E8HT98C]

Saint-Amans said the OECD's efforts have focused on engaging with governments rather than imposing more supervision on financial institutions. The complexity of the industry, he said, meant that greater information exchange was the best way to tackle people using banking secrecy to break the law.

"I’m not sure that nationalising the banking industry throughout the world is the solution. The fact you have private practitioners being involved in a sophisticated environment is why you need to favour transparency and exchange of information," he said.

Efforts to increase disclosure and combat both tax evasion and money laundering by international bodies such as the OECD and the Financial Action Task Force (FATF), a Paris-based inter-governmental body, have focused on self regulation.

"We've tried to ensure that what we're talking about is not to create some draconian system where we put a policeman in every financial institution which would be impossible to do," said a senior source at the FATF, which was set up to combat money laundering and terrorist financing.

Nick Matthews, anti-money laundering and offshore financial industry specialist at Kinetic Partners, said purging the world's financial system is "incredibly difficult".

"Clearly tax evasion leads to money laundering and is a crime but you would have money laundering even if there was no tax, because you still have proceeds from crime or corruption polluting the financial system," he said.

"That is why I say that no bank would ever stand up and claim that they are not being used to launder money. They appreciate that they are only as strong as their weakest link."

(Additional reporting by Katharina Bart and Martin de Sa'Pinto in Zurich; editing by David Stamp)

((chris.vellacott@thomsonreuters.com)( 44)(0)(20 75423987)(Reuters Messaging: chris.vellacott.thomsonreuters.com@reuters.net)) Keywords: TAX/OFFSHORE

(C) Reuters 2012. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing, or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world."

http://in.reuters.com/article/2012/07/26/idINL6E8IOASE20120726

There is obviously no shortage of money in this world... only the folks who play by the traditional rules are short of financial resources.

[charliep]

oneoff

Just curious if you were farming in the late 1970's/early 80's? If you were, what was the attitude in the late 1970's? The change in the early 1980's? It wouldn't likely be interest rates (not ruling out) but there are enough warning signs of something else. My lessons from this time period is you can be optimistic long term but you have to survive the short run. My other lesson from the 1980's was how quickly you can burn up equity with declining asset values and a few years of losses.

1988 from a summer rally perspective and 2008 from recent experience in blow off market need to be looked at. I will feel a lot more comfortable with the occassion setback and renewed commercial buying that launches us higher. Markets that staight up always make me nervous. Bull markets always need to be fed new information.

[cottonpicken]

I'm sorry i was out of line.

I watch that kyle bass video once in a while and i get
to fired up at the policy makers and the pain that is
coming at regular people.

People could have protected themselves 10 years ago
with gold but now its to late.