$1100 palm oil halts demand from biofuel sector; US and EU producers switch to Argentine soy in desperate moves to cut costs

In Singapore, the executive director of Ginga Global Markets told the Reuters Global Agriculture and Biofuels Summit that palm oil exports to the US and Europe will slow this year due to high prices and soy oil export competition from Argentina. Palm oil prices have spared to $1100 per tonne in recent weeks, nearly halting demand from the biofuels sector. Malaysian palm oil exports to the EU fell 20 percent between January and November.

In Malaysia, the central government has released emergency stocks of palm oil and ordered producers to step up output by 30 percent after a wave of panic buying prompted by shortages and price increases. The world’s largest producer of palm oil has introduced rationing after experiencing a spike in demand associated with Chinese New Year. The price of palm oil, a key biofuel feedstock, rose to $1098 per tonne.

Malaysian crude palm oil had risen to an all-time high of $956 per tonne by January 3rd, tracking rises in oil and soybean prices. Oil reached a record $100 per barrel that day.

As recently as December 18th, the Malsysian government said that “We are happy that crude palm oil is fetching high prices“. Second Finance Minister Nor Mohamed Yakcop said at that time he believed that current CPO (crude palm oil) prices were not ” excessively high” and said that higher prices equated to higher revenues for Malaysia. Palm oil has reaching an all-time high of $925 in late November before settling back to $886 in early December.

By contrast, in Argentina, a restriction on beef exports aimed at reducing local beef prices has led to a conversion of 10 percent of Argentine ranchlands to soybean production.

Soybean is not subject to export or price controls and 50 percent of all cultivated land in Argentina is used to grow soybeans. 90 percent of the crop is exported. Last year, the Argentine federal government increased the export tax on soybeans, soy products and corn, but exempted biofuels from increases. This move is expected to spur exports of Argentine biodiesel and ethanol to the EU and the US. The province of Santa Fe, which hosts most of the major biodiesel plants, has additional incentives in place.

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