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Palm oil price rises to 5-month high as analyst warns of global shortage

Palm oil farmer.
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We could soon be running out palm oil according to one analyst.

Speaking at an industry conference in Goa and reported by Reuters, vegetable oil analyst Thomas Mielke said Thursday that global palm oil supplies won't meet export demand in in 2016/17.

In a report passed on to CNBC from Miekle's company, Oilword, Miekle's team said palm oil production has been negatively affected by the severe drought caused by El Nino in 2015.

"El Nino faded towards the end of April and rainfall has improved since May 2016, but the lagged effects of the drought palm oil yields are still ongoing," the report reads.

The edible vegetable oil has long been used for cooking in developing parts of the world such as Africa or Brazil and is also now widely used in the commercial food industry in products including, candy, ice cream, pizza dough and peanut butter.

The study suggest world production of palm oil from January to September will be smaller than expected at only an estimated 43.3 million tons and describing the slump to that level as "unprecedented and bullish".

Production has reportedly been hampered in Indonesia, Malaysia and Thailand.

Malaysian palm oil futures grew to a five-month high on the Bursa Malaysia Derivatives Exchange Thursday, touching an intraday high of 2,729 ringgit ($664) per ton.

Speaking in Goa Mielke said the world would now need to increase its dependency on soy oil which becomes an attractive option for buyers when the spread to the price of palm is narrowed.

The analyst forecast that India's soymeal exports will jump sharply to 1.4 million tons in 2016/17 versus 0.2 million tons a year earlier.

Speaking at the same conference, chairman of commodities consultancy LMC International James Fry, forecast that global palm oil output will rise by 4 million tons in the first half of next year.

"The 2017 first half rebound will almost offset the 2016 first half collapse," he said at the conference Thursday

Reuters contributed to this report


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