The future of palm oil prices depends on the fate of the Ukraine war, although even a resolution of the conflict would not see values return to historic levels, plantations group Sipef said.
The bananas-to-rubber group, which produces palm oil in Indonesia and Papua New Guinea, said that Russia’s invasion of Ukraine, the top exporter of sunflower oil, had only exacerbated a squeeze on vegetable oil supplies caused by the likes of La Nina-caused weather anomalies, such as South American drought.
“The only vegoil that could have filled the gap in this very tight global vegoil complex, was the Ukrainian and Russian sunflower oil,” Sipef said.
“However, due to the Russian invasion of Ukraine, all ports have stopped operating in the Black Sea.”
The dearth of sunflower exports meant that the “already super-tight [vegoil] market only got tighter, and consumers are running out of stocks.
In the benchmark Kuala Lumpur palm oil futures market, prices hit a record high of 7,268 ringgit a tonne last month, on a benchmark contract basis, up 55% for 2022, and up 86% year on year.
‘New price floor’
Sipef added that “the entire vegetable oil complex is looking at ways to replace the sunflower oil that is stuck in Ukraine and Russia” – making the outcome of the conflict key to values of vegoils including palm oil.
“A potential opening of ports, and the release of sunflower oil, could certainly lead to a short-term price reduction.
“The longevity of the war situation in the Black Sea region will determine much of the upcoming price direction of palm oil.”
However, even imminent peace would not return prices of palm oil, and other ags, to historic levels, given the higher production costs that increased bills for the likes of fuel and fertilizer are confronting farmers with.
“With higher cost prices following the energy and fertiliser price increases, Sipef believes a new price floor has been created in the entire agricultural complex.”
‘Not very hopeful’
The group also flagged the importance of the timing of Ukraine peace on prospects for the sowing of the country’s spring crops, of which sunflowers are the most popular in area terms.
“The first signals of new plantings in Ukraine are not very hopeful,” Sipef said.
In fact, Ukraine’s farm ministry on Friday raised its forecast for the country’s spring sowings of all crops by 600,000 hectares to 14.0m hectares, although this remains below the 16.9m hectares seeded last year.
Some private commentators expect some more notable area drops, with UkrAgroConsult, for instance, forecasting a 35% reduction to 4.40m hectares in sunflower area this year, and a 40% slump to 3.30m hectares in corn area.
APK-Inform last month forecast a 55% dip to 38.9m tonnes in Ukraine’s overall grain harvest this year.