Palm oil futures prices are down sharply following Indonesia’s announcement that it would increase exports in the hopes of reducing swollen domestic inventories.
The September palm oil contract dropped as much as 10% in Wednesday trading on the Bursa Malaysia Derivatives Exchange before closing down 2.7%. The contract has fallen 14% since Indonesia, the world’s biggest producer and exporter of palm oil, announced the new export quota over the weekend.
The price declines continue palm oil’s recent slide — futures prices on the Malaysia exchange are down 39% from April’s record high. Palm oil’s drop also comes at a time when futures prices for a host of commodities, including wheat, corn, and soybeans, as well as crude oil, are also trading well off their highs.
Lower prices for vegetable oils, of which palm oil is the most widely consumed worldwide, could help tame food price inflation. Gro’s Custom Price Index Application shows that in the US, a basket of vegetable oils commonly used by food manufacturers is currently down by double digits from an all-time high posted in May. Vegetable oils also are used for cooking and increasingly as feedstock in producing biofuels.
Retreating palm oil prices could increase demand from India and China, the top vegetable oil importing countries. In China, palm oil import margins are approaching parity with domestic cash prices, which could attract Chinese buying interest, especially if global palm oil prices continue to fall. In India, vegetable oil import quotas for the time being are giving an advantage to domestic producers.
Additional Resources on Vegetable Oils:
Gro’s US Vegetable Oil Price Index, part of Gro’s Custom Price Index Application, tracks the cost of a basket of vegetable oils commonly used by food manufacturers.