Palm Oil Internet Seminar

Section 1: CPO Price Trend:
Global Soybean Production - Outlook 2018 and Critical Issues Facing Soybean Trade.
By: Dr. Sathia Varqa

Dr. Sathia Varqa is the owner and co-founder of Palm Oil Analytics (POA), an online publisher of palm oil daily news, price, data and analysis based in Singapore, serving global commodity markets.

POA publishes two daily reports a day covering price assessments analysis of key data and market commentary.

Sathia previously worked for S&P Global Platts, a division of S&P Global (previously McGraw-Hill Finance) based in Singapore.

He holds a BA (Business Studies), Master degree in International Trade (Distinction) and a PhD in political economy from The Robert Gordon University, Aberdeen, Scotland, UK

Favorable weather conditions, expanded planted acreage and better yields, is set to see better soybeans production in the coming marketing year beginning September 2018 versus last marketing year. Brazil is set to overtake the traditionally largest soybeans supplier United States for the first time this year, while Argentina is set to see a rebound following dismal weather disrupted production in 2017. Collectively the G3 countries are expected to see an increase of 5.43% production in 2018-19, led by Argentina. However the bullish production scenario has not been met with corresponding bullish off-take, mainly due to negative international trade outlook emanating from U.S and China tariff war. The series of sporadic announcement by the U.S on a range of Chinese imports followed by retaliatory announcement by China on U.S imports has now progressed to target soybeans among others, constraining export demand. In addition, logistical issues in Brazil triggered by fuel strike have choked up soybeans trade flow from Brazil. While the perpetual pressure from the European Union on curtailing food based biofuel feedstock been gaining momentum once more. Furthermore recent increases in import duties on soft oils by the Indian government set to depress soybeans import share into the country while increasing competitiveness to palm oil. These are some of the critical issues facing soybean trade for the rest of the 2018 and into half of 2019. This paper explores the production outlook and the trade constraints governing the sector and some implication on price outlook.

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Questions & Answers (3) :
6 years ago
Do you think there is still a future for USA soybean farmers? Based on your thoughts on the future outlook for USA soybean, what changes do you think global palm oil trade will change.
Sathia Varqa:
Dear Akmal, yes there is still bright future for U.S soybean farmers. While the trade issues are there in the first term of Trump U.S administration, global demand and free trade are here to stay for much longer than 10 years. Also the U.S is a large domestic market. If you look at the NOPA numbers, the crush volume continue to increase to meet domestic soybean oil demand. Politically the soybean belt is a large vote bank with strong political and scientific lobby, so it is structurally integrated into the American psyche. Well soybean oil and palm oil prices are closely correlated, even though soybean oil is driven by demand for soybean meal. The main change would be on soybean oil versus palm oil import share to India. India generally buy 60% palm oil and 40% soft oils, but this been changing after the Indian import tariff in March. China decision on buying palm oil among other oils to replace the lost soybean oil from the lower soybean imports from the U.S is also something that will change, though meal is the main driver here. The main one to watch is India.
6 years ago
Tey Poh Leng
6 years ago
What is the current prices differences of Soybean and Soyoil between A) USA vs Brazil. B) USA vs Argentina? Can the price differential become wider?
Sathia Varqa:
Dear Poh Leng, Brazilian soybean oil premium over U.S is about US$ 20-25, from the usual US$ 5 to 10. The rising Brazilian premium is due to logistical issues emanating from Brazilian transportation workers, but also from rising demand from China. Brazil soybean is generally on premium to Argentina however Argentina holds the premium on soybean derivatives products like soybean oil and soybean meal. Argentina is set to rebound with large soybean meal export this marketing year, so it will once again hold a dominant position in meal prices in 2018-2019. Soybean meal prices prices will become wider between Argentina and U.S but soybeans prices between U.S and Brazil will narrow again in the next 3-5 months as the trade issue and domestic problems are sorted out.
6 years ago
6 years ago
Dear Dr. Sathia , if China replacing soybean meal with rapeseed or corn meal, the crushing of rapeseed and corn will also lead to more edible oil supply into the market? Ultimately palm oil still need to compete with these two oils and how palm oil gaining market share?
Sathia Varqa:
Dear HC Leow, Thanks for your question. Yes that is correct, China cannot do without protein meal, so will turn to other oilseeds and this will in turn increase the supply of oil as they crush more for meal. Extra oil will compete with palm oil. Palm prices are already under pressure. RBD palm olein is down 13% or US$ 85 on CNF South China basis from Jan to now, but consumption is not increasing. Palm oil stocks are increasing month on month. Palm oil stocks in China is 568K end of July or up 73.5% from Jul 2017, so palm prices will be under pressure in China. I think palm oil market share will struggle as supply of other oils increase.
6 years ago
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