Understand the Fundamentals of the Underlying Industry: Crude Palm Oil
When investing in trading crude palm oil, it is essential to understand the fundamental drivers of crude palm oil prices. Supply and demand are the key drivers of prices. Crude palm oil traders closely watch factors that impact supply and demand. Let’s explore the fundamental factors that drive crude palm oil prices.
What Moves Palm Oil Prices?
Weather – patterns have both short-term and long-term impacts on palm oil supply. Seasonal weather patterns in Malaysia, such as the annual monsoon season, brings heavy rain, and flooding often occurs in the plantations and hampers harvesting of fruit bunches. Crude palm oil production typically is lower during the monsoon season from November till February. Longer-term climate patterns such as La Nina and El Nino phenomena can bring wet or dry spells that affect palm oil yields and production.
Manpower Availability – Harvesting fresh palm oil fruits is a labour-intensive process. Shortage of labour leads to lower productivity at the plantations and ultimately affects the palm oil supply.
Demand for palm oil – China, India and Europe are among the largest importers of palm oil, and changes in demand in these countries will significantly impact demand. Economic growth and food demand in India and China are important factors watched by traders. Import policies from importing countries, such as tariff policies, green energy policies, and regulatory barriers, impact palm oil exports.
Price of competing vegetable oils – The supply and demand of other vegetable oils such as soybean oil, sunflower oil, rapeseed oil, and corn oil can also affect the price of crude palm oil. For example, bad weather such as drought in soybean producing countries like the United States, Brazil, or Argentina will lower soybean production, therefore affecting soybean oil prices that will have upward effect on palm oil prices.
Crude oil prices and biofuel policy –Higher prices of fossil fuels lead to a positive impact on biofuel demand since palm oil is the feedstock for biodiesel production. Implementation of biodiesel mandates by the government supports palm oil prices.
Palm Oil Reports & Data Resources
Fundamental supply and demand data for the palm oil industry can be analysed for trends in production and exports. Reports by the following are closely watched by the industry as well as traders of crude palm oil: –
- Malaysian Palm Oil Association (MPOA) – estimates of palm oil production
- Malaysian Palm Oil Board (MPOB) – palm oil data on the performance of the Malaysian palm oil industry is released on the 10th of every month, which includes data on production, stocks, exports, and imports.
- Southern Peninsula Palm Oil Millers Association (SPPOMA) – production estimates
- ITS, Amspec and SGS cargo surveyors – export estimates
- Reuters Poll & Bloomberg Poll on palm oil supply and demand data
The US Department of Agriculture (USDA) data is also a vital resource to track supply and demand data for soybean and other crops related to vegetable oils. For crude oil and energy markets, the US Energy Information Administration (EIA) website is a valuable resource for energy statistics and reports.
Traders can get regular updates from their licensed Futures brokers when the weekly and monthly reports are published. Additionally, broker research reports on the palm oil plantation sector can offer valuable insights into the palm oil industry.