-  Yesterday, Mr Thomas Mielke of Oil World said that the rally in CPO futures is overdone. Several importing countries such as India, China and European Union have reduced buying of palm oil. The surge in CPO prices has resulted in palm oil being less attractive against other vegetable oils.

-  In spite of this, Mr Thomas Mielke said that the Rotterdam price for CPO will exceed US$1,000/tonne in the next four to eight weeks.

-  He expects an average CPO price of US$970/tonne this year. Thomas Mielke said that it is too premature to conclude that El Nino is coming.

-  Mr James Fry said that there are no signs of a supply shortage in oilseeds such as soybean and canola. This is in spite of transportation bottlenecks, which have impeded canola from reaching the ports in Canada and soybean from reaching the ports in Brazil.

-  Hence although CPO prices have support from biofuel, supply of other vegetable oils would cap its upside.

-  James Fry predicted that CPO price would rise above RM3,000/tonne by mid-year but pressure from other vegetable oils would stop it there. This is based on the assumption that Brent crude oil stays at US$110/barrel.

-  Mr Dorab Mistry gave two scenarios for forecasting CPO prices.

-  If the weather normalises, then CPO prices would reach RM3,000/tonne by June. Thereafter, CPO prices would decline to a range of RM2,600/tonne to RM2,900/tonne by October 2014.

-  There is a 30% probability that CPO prices would fall below RM2,400/tonne if the weather is good.

-  If there is El Nino, then CPO price could increase to RM3,500/tonne beyond June 2014. Mr Dorab Mistry said that the dry spell in Malaysia must end next week.

-  For now, Mr Dorab Mistry forecasts CPO production in Malaysia at 19.5mil to 19.7mil tonnes in 2014F. CPO output is estimated at 30.5mil tonnes in Indonesia this year.

Source: AmeSecurities