By Luzi Ann Javier and Ranjeetha Pakiam
17 April 2012
Demand for edible oils is climbing to a record as drought damages crops across South America, leaving buyers with the smallest stockpiles in three decades.
The use of soy, palm, rapeseed and six other oils will rise 3.9 percent this year, reducing the ratio of reserves to demand to the lowest since 1977, the U.S. Department of Agriculture estimates. Palm, the most-consumed oil, will advance 8.5 percent to 3,800 ringgit ($1,240) a metric ton in Kuala Lumpur by Dec. 31, the highest since February 2011, according to the median of 11 analyst and trader estimates compiled by Bloomberg.
While wheat dropped 23 percent and corn lost 19 percent in the past year as farmers reaped record crops, oilseed prices are surging after drought parched fields across South America, the biggest soybean-producing region. U.S. growers are planting the most corn acres since 1937 and reducing soybean plantings to the smallest in five years, the government estimates. Many farmers bought most of their seeds by January. Since then, soybeans have jumped 19 percent and palm oil 14 percent.
“The edible-oil market is tightening up more quickly than anyone expected,” said Wayne Gordon, an agriculture strategist at UBS AG who warned almost a year ago that drier weather would parch South America crops. “It’s in rationing mode. We have yet to see the peak in prices.”
Cooking oils advanced as drought in Brazil and Argentina contributed to a 9 percent slump in global soybean harvests, the most since 1996. Palm oil increased 10 percent to 3,503 ringgit this year and soybean oil rose 7.1 percent in Chicago as the Standard & Poor’s GSCI Agriculture Index of eight commodities declined 2.6 percent. The MSCI All-Country World Index of equities added 9.2 percent and Treasuries were little changed, a Bank of America Corp. index shows. […]