In The News - 15/08/2005

Palm oil prices in western Europe could firm in coming months because of expected increased demand from the biodiesel industry and higher prices in top producer Malaysia, traders said on Friday.

Crude palm oil (CPO) prices in Europe <VEGOIL/EU> edged down late last month, reflecting weaker futures in Malaysia, the barometer for the commodity's prices, after Kuala Lumpur changed its currency policy. But prices started climbing this month.

"Demand is extremely slow at the moment and the market is indecisive," one vegetable oil European trader said.

"But that it is likely to change as we expect bigger demand from the biodiesel sector this year and that could support prices in the longer run. It is everybody's guess how big this demand will be," the trader said.

The share of biofuels, seen as a cheaper and environmentally responsible alternative to petrol and diesel, derived from palm oil is expected to rise in the European Union in coming years, industry analysts have said.

The EU vegetable oil federation Fediol has forecast that 20 percent of the bloc's biodiesel, currently made mainly with rapeseed oil, could come from palm oil by 2010.

"Demand for palm oil from the biodiesel industry is definitely growing this year compared with last year," another vegetable oil trader said.

Production capacity for biofuels, which turn organic matter into energy, has been rising in Europe in the past several years as part of the bloc's efforts to promote cleaner fuels and reduce dependence on expensive crude oil imports.

Traders say other factors that would support palm oil prices were rising purchases in several Asian countries because of various festivals as well as volatile rival U.S. soy oil futures due to varying weather outlooks for the new soybean crop.

Palm and soy oil compete for export destinations and their prices often move in tandem.

September shipments of CPO were quoted at $412.50 per tonne on Friday in Europe, flat from Thursday but $5 higher from three weeks ago. Oct/Dec was offered at $420 per tonne, from $415 late last month.

CPO futures weakened in the second half of last month after Malaysia scrapped the seven-year peg of its ringgit to the dollar for a managed float of the currency.

Economists had estimated that the pegged rinngit was undervalued, which boosted Malaysian palm competitiviteness with other oils.

Malaysian traders have also forecast a rebound in prices, noting increased purchases from China, empowered by a stronger yuan after its own currency revaluation.

Industry publication Oil World forecast late last month that global production of palm oil was likely to fall in 2005/06 because of a drop in Malaysia while demand was set to rise, leading to prices appreciation in the medium term.

Oil World said palm oil's share in global vegetable oils consumption was expected to catch up with that of soy oil's 29-32 percent in 2005/06. EU's palm oil consumption rose to 18 percent last year from about 10 percent in 1990/91.

The Chicago Board of Trade soybean market whipsawed on Friday as volatility increased after the USDA released its latest U.S. 2005 crop and stocks estimates, traders said.

New-crop November soybean futures <SX5> saw an 18-1/4 cent range, trading on both sides of Thursday's settlement. November closed 2-1/4 cents lower at $6.48 -- after climbing more than 10 cents and through its 100-day moving average.

The market opened weaker on prospects that August rains were improving crop prospects, traders said. Those same concerns pulled prices lower by the close.

"The reason for any negativity has to do with the expectation for a rainfall in the Midwest. Also the fact that the USDA reduced its new-crop usage estimate by 60 million bushels, so the carry-over figure came out -- while lower than last month -- higher than the average (trade estimate)," said Anne Frick, Prudential Securities oilseeds analyst.

USDA cut 2005/06 soy end stocks by 30 million bushels to 180 million -- a reflection of an expected smaller soy crop. The government pegged U.S. soy production at 2.791 billion. That was below an average of analysts' estimates for 2.804 billion and below USDA's forecast in July for 2.890 billion.

But the estimate was made as of conditions on Aug. 1. Rains since then, including good coverage this week across the Midwest, were seen improving soybean crop conditions.

Meteorlogix weather early Friday said cooler temperatures and some rainfall over the next few days would benefit filling corn and pod-setting soy in the Midwest.

"The bean number is neutral. But the fact that it's raining out there (means) people are going to second-guess their production number," said one cash-connected trader.

Expiration of the August soybean, soymeal and soyoil contracts was quiet as open interest had dwindled to manageable levels before the contracts stop trading at 12:01 p.m. CDT.

August soy <SQ5> went off the board 2 cents higher at $6.43. August oil <BOQ5> expired 0.13 cent per lb higher at 22.80 and August soymeal <SMQ5> expired weak, down $4.60 at $203 per ton. Open interest in the August meal was the largest at 437 lots as of the open.

Export business featured talk that China may have bought one of its first cargoes of U.S. soybeans for the new-crop year out of the Pacific Northwest, traders said.

The soymeal closed lower following soybeans. Soymeal lost ground to soyoil as USDA oil stocks data released on Friday was supportive, traders said.

September soymeal <SMQ5> settled $2.60 per ton lower at $202.20 and August soyoil <BOQ5> was up 0.05 cent at 22.73 cents. September crush was 2.42 cents down at 54.37 cents.

"The oil stocks were very friendly," said Vic Lespinasse, a floor broker with A.G. Edwards.

The government reduced its 2005/06 end stocks estimate to 1.496 billion lbs, from 1.671 billion last month.

But USDA left 2005/06 end stocks unchanged at 250,000 tons, unchanged from July.

Malaysian palm oil futures closed firm overnight. Palm rebound to end higher as dealers covered positions due to persistent worries about supply, Kuala Lumpur traders said.

Funds were net buyers of about 2,000 soybeans, sellers of 1,500 soymeal lots and even in soyoil. Commercials were net buyers of roughly 3,500 soyoil contracts.

Volume was moderate. An estimated 64,203 soy futures and 30,753 options traded. Soymeal trade was pegged at 25,671 futures and 2,740 options. In soyoil, an estimated 24,597 futures and 1,385 options traded.

(Note: all prices in Canadian dollars unless noted.)

Winnipeg Commodity Exchange canola futures ended lower on Friday amid commercial selling and light hedge pressure, traders said.

Feed wheat futures were sharply lower as forecasts for frost on Friday night in Alberta and Saskatchewan sparked concerns that the quality of wheat for food production could be affected, downgrading it to feed wheat.

November canola <RSX5> settled $2.50 per tonne lower at $283.20 and January <RSF6> was down $2.60 at $291.30.

Traders said there was an increase in canola volume, adding that buy stops were hit in the November contract between $287 and $292 amid buying by commission houses.

"Commercials began selling at the highs," a trader said. 

"The canola market is overall bearish, so commercials sold when the November got to the highs," he added.

Spreads were active, with November/January trading actively at $8.00.

Traders said the U.S. Department of Agriculture's August crop report issued on Friday did not have much impact.

The Canadian dollar held at a five-month high against the U.S. dollar, which was likely to dampen export demand.

Traders said Mexico had sought offers for canola to be shipped in October, but any deals could not be confirmed.

($1=$1.20 Canadian)

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