Wednesday, October 27, 2021
HomeFarmweek NewsPalm oil prices set to fall as producers’ unsold stock rises

Palm oil prices set to fall as producers’ unsold stock rises

The world may be heading for a glut of palm oil – leading to falling prices in the coming months.

Both Indonesia, the largest palm oil producer, and Malaysia, the second biggest, saw their unsold stocks rise sharply last month while exports fell.

The two countries between them account for 85 per cent of the palm oil production in the world.

A seasonal rise in production and a sharp decline in exports and domestic consumption is being blamed for the situation in Malaysia, which saw a 25.3 per cent rise in the quantity of oil produced in August compared to the previous month.

Figures from the Malaysian Palm Oil Board, or MPOB, indicate that the country now has significant reserves at a time when demand is falling.

Analysts predict the glut of palm oil will force prices down in the short term.

However, a shortage of foreign labour has severely hit harvesting and replanting on the palm estates, leading to the MPOB lowering its estimate of annual production overall.

Palm oil prices hit a record high in May and the rate in early September is only modestly lower.

However, there are early indications of a price fall among orders being placed for November and beyond.

The high prices deterred buyers last month, with exports in Malaysian palm oil falling by 17.1 per cent – while production rose by almost 12 per cent.

Indonesia was similarly struggling to move produce and reacted by cutting its export tax in August.

The difficulties have come at a time when Malaysia’s new deputy minister of agriculture is pushing to get more young people into agriculture.

Nik Muhammad Zawawi Salleh wants university graduates in particular to consider entering the field.

Traditionally, those emerging from the country’s universities aspired to land a government post.

According to the minister, that now has to change so that they can bring their learning and abilities to a sector in need of modernisation.

He told reporters young people needed to emulate their counterparts in the United States by earning a lucrative income through cultivating commercial crops.

A boost for any young person considering following the minister’s advice might come from the Kuala Lumpur-based Agrobank.

It has just launched a new investment scheme, the Sukuk Wakalah – based on the Islamic principle of Wakalah Bi Al-Istithmer – to develop agriculture in Malaysia.

Bank chairman Datuk Mustapha Buang said for the first tranche Agrobank is planning to make available up to RM500 million.

“Proceeds from the sukuk issuance will be utilised for working capital requirements, general investments and/or to refinance any existing financing of Agrobank which are Shariah-compliant, hence steering the growth of the bank in the post-pandemic era,” he said.

“Our aim is to establish stable funding by securing lower cost of medium and long-term funding and it is hoped that it would be well received by a broad range of investors from high-quality accounts, including gov-ernment agencies, financial institutions, asset management companies and corporate accounts.”

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