Benchmark futures in Malaysia are down 6.8% this quarter as the world’s most-consumed edible oil grapples with persistently high stockpiles in the top growers amid lacklustre demand.
Its performance is in stark contrast to the Bloomberg agricultural spot price index – which is on course for the best quarterly performance in three years thanks to weather-related grain-supply disruption.
Another quarterly loss would cement palm oil in a seventh straight drop – the longest run since futures started trading in 1995.
The oil, used in everything from chocolate to biofuel, fell a sixth straight day on Thursday to close at RM1,963 a tonne in Kuala Lumpur, the lowest since August 2015.
Concerns over the US-China trade war, as well as too much supply and too little demand, had been the dominant theme in most agriculture markets for much of 2019.
That turned on its head for grain markets in the second quarter thanks to unprecedented wet weather in the US.
With no similar supply disruption coming for palm, that left the economy-sapping trade war as a key factor weighing on prices.
“On top of that, we also have a lot of palm and soybean stocks globally,” Ivy Ng, regional head of agribusiness at CIMB Investment Bank Bhd, said from Kuala Lumpur.
She said output in Malaysia, the second-biggest grower, has exceeded market expectations.
And while exports were strong earlier in the year, shipments have since weakened and that’s raised expectations that stockpiles may pick up again.
There’s also concern that rising supplies in top-grower Indonesia may increase competition with Malaysia and further dampen prices, she said.
Adding to the bad news is the fact that oil palms are about to start their season high-production cycle and that could further add to the glut.
With Indonesia’s production seen climbing by about 3 million metric tons in the year to September, prices are under pressure, according to Marcello Cultrera, institutional sales manager at Phillip Futures Sdn in Kuala Lumpur. “Palm oil’s outlook is bearish. Malaysian futures will hold between RM1,850 to RM2,150 until October, and after that may trade higher to RM2,300 at most.”