Trump, a possible El Nino may confound palm oil bears

Bloomberg

Palm oil bears are growing in confidence this year with production in the two largest growers expected to surge as plantations recover from the scorching effects of El Nino. The factors that may stand in the way, however, include Donald Trump and a possible early return of El Nino.
The quarterly average price of the oil used in everything from lipstick to chocolate is expected to slide about 12 percent by the fourth quarter. That would end a bull run that gave the commodity its biggest annual gain in six years.
It all depends on exactly when the predicted production surge in Malaysia and Indonesia starts. That will be a key focus as traders and executives gather in Malaysia’s capital for an annual palm oil conference starting Monday. The bullish factors they will be watching for include the possible El Nino as well as biodiesel policy decisions from Indonesia and the Trump’s administration in the US, according to Oscar Tjakra, senior analyst at RaboResearch Food & Agribusiness in Singapore.
Futures in Kuala Lumpur, the global benchmark, are forecast to average at 2,650 ringgit ($595) a metric ton in the fourth quarter from 3,020 ringgit so far in the first, according to the median estimate of analysts compiled by Bloomberg. Olam International Ltd., one of the world’s largest food traders, is among those predicting the fall, saying in earnings last week they are bearish on palm oil from the late second quarter onward.
“Sluggish palm oil demand and expectation that palm production cycle will shift to a seasonal uptrend from March continue to provide downward pressure for palm oil prices,” RaboResearch’s Tjakra said in emailed responses to questions. Palm oil is expected to see “minimal harvest disruptions and logistical issues for the rest of the first half,” he said. “There are still, however, uncertainties about weather in the second-half of 2017,” he said “El Nino could re-emerge.”
EL NINO COMEBACK
Forecasters are predicting El Nino may make a comeback less than a year after the world said goodbye to one of the strongest of the weather events on record. Recent observations suggest the likelihood of El Nino in 2017 has risen to about 50 percent, according to Australia’s Bureau of Meteorology on Feb. 28. Malaysia’s Meteorological Department said Feb. 20 that some models anticipate the onset as soon as March to May. If El Nino develops in the second half of the year, the impact on fresh fruit bunches will be felt six to nine months later and that would affect production in 2018, Rabobank’s Tjakra said.