COCONUT MARKET REPORT 23rd August 2023

 

We are currently facing a significant concern related to the El Niño weather phenomenon, which is affecting multiple countries in Asia. Reports from various sources highlight the potential for dry weather, water shortages, and drought. This will undoubtedly impact crop supplies for a wide range of agricultural commodities.

 

For reference, please review the following articles:

 

Government agencies across Southeast Asian nations are taking proactive measures to address this situation. The focus is primarily on preventing crop shortages and safeguarding food security. The anticipated effects of El Niño are likely to manifest within the next six months. Consequently, we should brace ourselves for potential crop shortages across Southeast Asia by the end of this year or in the first quarter of 2024.

 

In addition to crop concerns, this weather pattern also poses other risks such as the occurrence of forest fires, a phenomenon witnessed before in places like Indonesia.

 

For a deeper understanding of this matter, I encourage you to explore the articles linked below:

Malaya - Impact of El Nino 

 

 

 

Palm Oil prices have been steady as illustrated in the chart below:

 

 

In the first four months of 2023, Malaysia faced challenges in palm oil yields due to below-average production levels, resulting in higher prices above 3,800 ringgit per tonne. Despite a temporary drop in palm oil futures due to increased production, May saw positive growth in production, boosting inventories. However, concerns are raised about the potential impact of El Niño on yields and production in the coming year.

 

Historically, El Niño has affected palm oil production, and the transition to El Niñoweather patterns could disrupt the upward production trend. While the current season might not be severely impacted, the 2023-24 yields could decline, affecting final output.

 

Malaysia had a surplus of soil moisture due to higher precipitation in early 2023, potentially helping palm trees endure initial rainfall decline. Yet, average yield has been decreasing, and further reductions could push the average output below predictions.

 

The Malaysian Palm Oil Board's data indicates challenges in palm fruit bunch harvesting due to pandemic-related labor shortages. Analyst’s optimistic production forecast might be challenged by labor constraints.

 

The spread between soybean oil and palm oil prices has been fluctuating due to supply and demand dynamics, narrowing and widening based on different factors. The announcement of El Niño has highlighted the complex relationship between climate patterns and agriculture, particularly in Southeast Asia's palm oil production.

 

As the world shifts to renewable energy, palm oil's demand as a biofuel feedstock is increasing due to its high oil yield and versatility.
The same applies to that of other oil seeds such as coconut which have biofuel applications and whose prices also move in sympathy with that of Palm Oil.

 

 

 

Crude oil prices have maintained stability despite reduced demand from China. This steadiness is largely attributed to production cuts by OPEC. The stable crude oil prices enhance the feasibility of utilizing vegetable oils as an alternative fuel source. This, in turn, could influence the rise in prices of oil seeds like Palm and Coconut.

 

 

 

We are currently entering the Philippine Typhoon season, a period that brings about more than 20 typhoons each year. It's important to recognize that with shifting weather patterns, we might witness even more intense and potent typhoons. Based on previous instances, we understand that a powerful typhoon has the potential to entirely disrupt the supply chain originating from the Philippines, a significant producer of coconuts. This disruption can create turmoil within the coconut supply landscape.

 

A recent example is Typhoon Doksuri, which the Philippines has experienced. You can find further information on this matter in the link provided: Typhoon Doksuri Impact

 

As we navigate through this period, it's crucial to stay informed and prepared for potential disruptions that these typhoons can bring to the coconut industry and supply chain.

 

 

 

The Drewry World Container Index, a measure of container shipping rates, rose by 2.3% to $1,832.48 per 40ft container in the current peak in September. It remains 29% higher than the average rates from 2019 (pre-pandemic).

 

The average index for the year-to-date is $1,773 per 40ft container, significantly lower than the 10-year average of $2,683. Could this mean therefore we should expect freights to rise further?

 

 

 

 

Regarding crop and pricing dynamics, it's evident that prices have achieved a state of stability across various origins. However, we advise buyers to exercise caution and not anticipate further price drops. Our perspective is that the market has reached its lowest point. Producers and farmers are currently operating under constraints that prevent them from tolerating any additional price reductions.

Unlike the circumstances of 2022, where global demand plummeted due to oversaturation of costly inventory amidst reduced market demand, the present scenario stands in stark contrast. Notably, inventory levels have decreased in major markets, leading to warehouses no longer being at full capacity. Moreover, wholesalers are actively purchasing products within their respective markets.

Prominent buyers are now recognizing that prices are unlikely to decrease further; in fact, there is a perceived potential for pricing to rise. A resurgence in demand is being witnessed across all markets, with factories experiencing an influx of orders. Many factories are already sold out for September and are contemplating selling positions for October and November onward. It's crucial to acknowledge that these buyers are also acknowledging the inherent risk associated with weather-related crop challenges. Consequently, they are foreseeing a scenario of decreased supply coupled with heightened demand in the near future. This anticipation is prompting numerous buyers to seek to secure purchases extending into 2024, willing to engage sellers who are open to such forward commitments.

Given these factors, we strongly advocate for prudence and proactive purchasing decisions. Acting sooner rather than later can help you avoid potential supply disruptions or shortages, and also mitigate the likelihood of paying elevated prices, which appear increasingly probable.

We are eager to engage in discussions about how we can best meet your needs and serve your interests in this dynamic market environment. Your thoughts and insights are highly valuable to us. Please feel free to share your perspective so we can explore ways to collaborate effectively.