The Council of Palm Oil Producing Countries (CPOPC) is forecasting improvement in palm oil prices next year compared to the last two years.
“On the whole, the palm oil outlook in 2021 looks favorable compared to the average prices of 2019 and 2020,” CPOPC said in its World Palm Oil Outlook 2021 uploaded on its official website.
However, it also cautioned that it would also depend on the development of the La Nina weather phenomenon and Indonesia’s B30 biodiesel mandate.
The La Nina that is currently developing, may cause some disruptions to soybean production centers in South America, the CPOPC report said, adding that if the resulting dry weather persisted, there would be more severe soy oil disruptions in Brazil and Argentina.
Droughts in the Black Sea region were also limiting sunflower and rapeseed production. Soybean, sunflower and rapeseed are the main competitors to palm oil.
The drought in South America and in the Black Sea region would result a lower supply in vegetable oils and thus raising their prices well into the first half of 2021.
“Current edible oil stockpiles in China and India are also tight, keeping edible oil imports healthy,” the report said. It added that the price surge in the last quarter of 2020 reflected the rapidly recovering demand from India and China, major palm oil consumers, after they went through national lockdowns and temporary halts on economic activities due to the pandemic.
The outlook also pointed out that the rise in competing edible oil prices was also positive. It could encourage consumers to switch to palm oil as a cheaper alternative, it said.
Indonesia is currently implementing a mandatory mixture of 30 percent biofuel into diesel oil, or a blend known as B30, while Malaysia is implementing a B20 mandate. The two policies have boosted demand for palm oil in the domestic markets of those two countries;
“The full implementation of the B30 mandate in Indonesia and the B20 mandate in Malaysia is crucial to sustain domestic consumption and absorb the anticipated palm oil supply growth. A deficit situation in the global vegetable oils will lend support to CPO prices going into 2021,” it said.
The report said that many analysts have agreed that the palm oil supply will improve in the second half of 2021 due to the effect of higher rainfall, which should be beneficial for Fresh Fruit Bunch (FFB) yields.
Others also foresaw that good weather conditions in Indonesia and Malaysia would raise global palm oil supply in 2021 by 3.1 million tons.
At the Indonesian Palm Oil Conference 2020 taking place virtually on Wednesday, Bustanul Arifin, a Professor in Agriculture Economics at the University of Lampung estimated that global palm oil production in 2021 would increase by 3.44 million tons, or eight percent, to 46.44 million tons.
Arifin said that the outlook for 2021 also showed that mostly because of a jump in CPO consumption of energy, in this case for the production of biodiesel, palm oil stocks at the end of the year stood to further weaken from the 3.60 million tons in 2020 to between 2.99 and 3.04 by end 2021.