Will Palm Oil’s Prices Sparks Lasts on 2021?
In the 2nd semester of 2020, palm oil producers received tremendous blessings during this pandemic, which was shown by the increase in palm oil prices. The MPOB’s data shows the monthly average of CPO CIFF Rotterdam price has increased, from USD 592 per ton in June to USD 954 per ton in December. Even it’s price was the highest since 2015.
Similar blessings were also enjoyed by smallholders who received a fairly high FFB price. For example, the average monthly FFB price in Riau, which ranges from IDR 1,500-2,000 per kilogram, even the monthly average price for FFB in that region has reached over IDR 2,000 per kilogram in September 2020. This condition is create more benefits for oil palm farmers, especially when there is an economic downturn due to the pandemic.
The positive trend in palm oil prices in 2020 is beneficial for FFB and palm oil producers, also raises the question are palm oil prices will remain “sparkling” in 2021?
Global vegetable oils market analysts in the Virtual Indonesia Palm Oil Conferences 2020 webinar, initiated by GAPKI, said that this high trend of palm oil prices will continue until the second quarter of 2021. Even the prediction of the President Director of ISTA Mielke GmbH, Thomas Mielke, estimates the price of CPO CIFF Rotterdam could reach USD 1,000 per ton by 2021. This is due to the low global palm oil stock which still continues until this year.
The depletion of palm oil stocks as an implication of not optimalized the growth of production as a result of the drought (El Nino) that occurred in 2019 and the lack of fertilizer use due to low palm oil. On the other hand, the implementation of the mandatory biodiesel (B30) in Indonesia and the demand for palm oil which has gradually recovered post-Covid has also causing palm oil stocks more depleted.
Palm oil price trends are expected to remain high in 2021, also influenced by the production of these three other vegetable oils such as soybean oil, rapeseed oil, and sunflower oil which is expected to decline. This was confirmed by James Fry, an analyst from LMC International Ltd UK, who revealed that the declining in production of these other vegetable oils due to low productivity because of bad weather and pests
The CPOPC report also shows that the La Nina climate anomaly in the Pacific Ocean will have an impact on decreasing the production of other vegetable oils. Disruption occurs in the main soybean producer countries in Brazil and Argentina, so that will cause reduce soybean production. Meanwhile, drought has also hit the Black Sea which will result in limited production of sunflowers and rapeseed.
Chairperson of Socio-Techno Economic Research Group in Indonesian Oil Palm Research Institute (IOPRI/PPKS), Ratnawati Nurkhoiry M.Sc, in the Webinar Bincang Pakar with the topic about “Assessing the Prospects for the Palm Oil Industry in 2021”, explained that palm oil prices will remain high, especially in the first quarter of 2021. This condition is due to the low supply of palm oil, which is constrained by year-end holidays and high rainfall due to La Nina which hinders the process of harvesting and transporting FFB to the mill.
However, the trend of palm oil prices is expected to decline in the second half of 2021, along with the recovery of it’s production because the climate is already conducive. In her presentation, she also estimates that the range of palm oil prices in 2021 is around USD 750-900 per ton, and transmitted to the FFB price at the farmers level in the range of Rp. 1,600-2,100 per kilogram.
The same thing was also expressed in the Fitch Report which stated that palm oil prices that were already too high would experience a correction in 2021. The price correction was due to the prospect of palm oil output in Indonesia which is expected to improve in 2021. However, Fitch also sees a risk it’s price, because the stock is getting lower due to climate anomalies.
Although palm oil prices that are too high are indeed beneficial for producers, especially smallholder farmers, on the other hand, they have the potential to reduce competitiveness in the global market and the further implications are decreasing demand, especially importing countries that are very price-sensitive such as India and China. The reduced competitiveness of palm oil could also lead to a switch to competitor vegetable oils. That condition will be very detrimental for Indonesia as a producer and exporter of palm oil in the world.
Therefore, palm oil stakeholders in Indonesia need a strategy to regulate palm oil supply so that it can maintain the stability of global palm oil stocks at a certain price level that is still profitable for producers and remains an incentive for consumers to buy. This can be done by optimizing the absorption of palm oil by the domestic processing industry, one of which is by continuing the mandatory B30 policy. Besides, the realization of the replanting programme on smallhodler farmer’s plantation (PSR) is also one of the solutions in order to maintain the balance of supply and demand.
Share this article
You may also like these articles