El Nino and global edible oil outlook both a bane and boon for palm oil prices
THE El Nino is a climate phenomenon where sea surface temperatures in the central and eastern Pacific Ocean undergo abnormal warming, causing disruption of normal weather patterns such as drier conditions in Southeast Asia and Australia and increased rainfall in regions like South America.
These changes in weather patterns can have significant impacts on our agriculture industry as it can cause reduced yield and crop failures which would disruption of food supply chains and negative impact global food security and prices.
The El Nino phenomenon occurs irregularly in intervals of two to seven years with varying intensity and duration; the last El Nino event was in 2018 while the last Major El Nino event on record is in 2015 and 2016.
The current El Nino cycle which began at the start of the second half of 2023 (2H23) started off with much heated discussion as there were fears that it would turn into a historically strong El Nino event due to increasingly unpredictable weather changes from global warming which was shaping 2023 into one of the warmest years on record.
In fact, 2023 did end up becoming the warmest calendar year on record as global average temperature increased to 14.98 Celsius, official dethroning 2016’s record of 14.81 Celsius.
But fortunately this did not translate to a major or strong El Nino event this time round as sea levels were observed to be only mildly elevated compared to previous major El Nino events. Note that high sea levels are associated with warmer waters while lower sea levels are associated with colder waters.
While the current El Nino event which is expected to end in April has caused some concern of shortages of food staples such as rice and wheat, for edible oils the impact has been largely unnoticed as industry sources such as the US Department of Agriculture (USDA) forecasted that global edible oil production may actually increase in 2024.
According to the USDA, global edible oil production will increase by 6.5 MT to 222.8 million (M) MT while global demand will increase to 217.5 million MT, leaving global ending stocks of vegetable oils to increase by approximately 0.1M MT to 30.6M MT in 2024.
The production of palm oil, the most important vegetable oil in the world is like to increase by 1.9M MT to 79.5M MT, with Indonesia producing 47M MT, Malaysia 18M MT and Thailand with 3.5M MT.
This is in line with our own local industry source as the Malaysian Palm Oil Board (MPOB) has forecasted in its first outlook report of 2024 that they expect Malaysia’s palm oil production to increase by 1.1 per cent from 18.55 MT in 2023 to 18.75M MT in 2024.
Soybean, the world second most consumed edible oil after palm oil, is expected to register a record breaking production year with a 2.9 per cent y-o-y growth to 61.6M MT in the coming year.
Similarly, both Canola oil and Sunflower oil productions are also expected to rise, albeit marginally, by 400,000 MT and 0.6M MT to 33M MT and 21.7M MT, respectively.
The robust soybean and sunflower harvest is expected to put some pressure on CPO prices moving forward as new reports have indicated that global traders are opting to switch to soyoil and sunoil as palm oil has begun trading at a premium to other oils.
According to a report from Reuters, Dubai-based Glentech Group have observed that CPO improts are being offered at about US$930 per MT while soyoil and sunoil are offered at around US$915 and US$910 per MT, respectively.