Crude palm oil futures (CPO) active month futures contract closed at RM3878 on Friday, down 9.4% week on week. However some metrics which I follow seems to suggest that the CPO price may have bottomed and are set to have a nice rally from here on till year end.

Divergence from crude oil price

Friday saw some some price divergence between crude oil and CPO price. Typically they move in tandem because of the biodiesel correlation between the two commodities. So when crude oil broke and stayed below USD90, it usually means a big negative for CPO price. However CPO futures managed to buck the trend and closed up 2% for the day at RM3878.

Forward spread curve 

Another big mover on Friday were the nearby contracts on the CPO futures vs the deferred contracts. What this means is that people are viewing that the nearby contracts are likely to appreciate more than the far months or what traders term as bull spreading. This is a bullish signal that the underlying price of the commodity could be nearing a bottom of the cycle and about to reverse direction.

MPOB monthly data released next week

Key data will be released next week by the MPOB monthly demand and supply of CPO. It is expected to be a bearish number as expectations are for monthly production to increase by between 2% to 2.8% while end stocks are expected to swell by between 7% to 10% according to polls done by Reuters, Bloomberg and CIMB Research. This is expected since we are entering peak production for CPO between August to October. What should be noted that despite this CPO futures have stayed comfortably above the RM3500 levels hit in mid July 2022.

Time to buy plantation stocks and long the CPO futures

I have turned bullish on CPO futures and plantation stocks as of Friday. I am long the CPO futures contract and also bought a basket of plantation stocks on Friday. I do not have price targets but I will follow the trend as long as my stop losses are not violated.