Palm Oil Posts Its Longest Quarterly Slump on Record 

(Bloomberg) -- Palm oil's stuck in a rut and unlikely to escape anytime soon.

Benchmark futures capped a 7.4% loss this quarter as the world's most-used edible oil grapples with persistently high stockpiles in the top growers amid lackluster demand. Its performance is in stark contrast to the Bloomberg agricultural spot price index, which is on course for the best quarterly gain in three years thanks to planting disruptions caused by record U.S. rainfall.

Futures in Malaysia have now posted their seventh straight quarterly drop -- the worst run since they started trading in 1995. The oil, used in everything from candy to biofuel, fell for a seventh straight day in Kuala Lumpur on Friday to close at 1,951 ringgit a metric ton ($472), the lowest in almost four years.

Concerns over the U.S.-China trade war, as well as too much supply and slack demand, had been the dominant theme in most agriculture markets for much of 2019. That was turned on its head for grains in the second quarter thanks to rain and floods in the U.S. With no similar disruption coming for palm, that left the economy-sapping trade war as a key factor pressuring prices.

“On top of that, we also have a lot of palm and soybean stocks globally,” said Ivy Ng, regional head of agribusiness at CIMB Investment Bank Bhd. Output in Malaysia, the second-biggest grower, has exceeded market expectations, she said. And while exports were strong earlier in the year, they've since weakened, and that's raised expectations that stockpiles may pick up again. There's also concern that rising supplies in top grower Indonesia will increase competition with Malaysia and dampen prices, she said.

Adding to the bad news is the fact that oil palms are about to start their seasonal high-production cycle, and that could further add to the glut.

With Indonesia's production seen climbing by about 3 million tons in the year to September, prices are under pressure, according to Marcello Cultrera, institutional sales manager at Phillip Futures Sdn in Kuala Lumpur. “Palm oil's outlook is bearish. Malaysian futures will hold between 1,850 ringgit to 2,150 ringgit until October, and after that may trade higher to 2,300 ringgit at most.”

To contact the reporter on this story: Anuradha Raghu in Kuala Lumpur at araghu3@bloomberg.net

To contact the editors responsible for this story: Anna Kitanaka at akitanaka@bloomberg.net, Andrew Hobbs, James Poole

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