The tropical oil will gain to 3,500 ringgit ($1,147) a metric ton from 3,385 ringgit at the close on the Malaysia Derivatives Exchange today, according to the median estimate in a Bloomberg survey of 10 analysts and traders who attended a conference in Kuala Lumpur last week.
Inventories of palm, soybean, rapeseed and six other oils will drop below 30 days of consumption this year, the fewest since 1977, U.S. Department of Agriculture data show. Global food prices rose for a second consecutive month in February on higher costs for cereals, cooking oils and sugar, as shown by the index of 55 food items tracked by the United Nations’ Food and Agriculture Organization.
“The stocks-to-usage ratio is going to be much lower this year, so that will boost prices,” said Sandeep Bajoria, chief executive officer of Sunvin Group, a Mumbai-based commodities trader, who predicts a high of 3,700 ringgit.
Futures climbed as high as 3,395 ringgit today, the most expensive since June 6. Prices have gained 6.6 percent this year compared with a 0.9 percent advance in the Standard & Poor’s GSCI Agriculture Index of eight commodities. The commodity last reached 3,500 ringgit in March last year.
The UN food index increased 1.2 percent in February from a month earlier and the gauge of edible oils and fats rose 2.1 percent. The cost of food may remain near current levels in coming months as demand drains increased supply, Abdolreza Abbassian, a senior FAO economist, said March 8.
The edible oil may climb to a four-year high of 4,000 ringgit ($1,310) by June and then drop to $1,150 to $1,200 on a free-on-board basis, according to Dorab Mistry, director at Godrej International Ltd., who has traded the commodity for three decades. Michael Coleman, managing director at Aisling Analytics Pte, said last month the price may climb to $1,300.
While global palm-oil output is set to increase 2.3 million tons this year, that won’t be enough to counter lower production of other oils including soybean and rapeseed, Thomas Mielke, executive director Oil World, said March 7. Global soybean production may drop by 20 million tons to 245.53 million tons after drought hurt crops in South America, he said.
Palm oil output in Malaysia, the second-biggest grower, is expected to climb to 19.4 million tons this year from a record 18.9 million tons in 2011, according to the Malaysian Palm Oil Board. From March, output each month will be less on a year-on- year comparison due to a low output cycle, leading to “flat” growth of as much as 19 million tons in 2012, Mistry estimates.
Production in Indonesia, the largest grower, will increase by about 1.4 million tons to 26.5 million tons in 2012, he said.
With crude oil trading above $100 a barrel and signs that the U.S and European Union economies are stabilizing, palm oil may climb as more investors buy commodities, said Bajoria.
“There is so much liquid money throughout the world, through the hedge funds and the new money injected via the European central bank,” he said. “The money travels to the destinations where the best returns can come.”