Watch out for 30 June USDA report – soy planting is expected to be significantly higher

Year-to-date, palm oil prices have peaked at RM2,880/tonne (t) in mid-May to current levels of about RM2,300/t.

Negatives for vegetable oil prices: 1) Germany will cut 2009 biodiesel blending target to 5.25% from 6.25% originally intended; 2) speakers in 2009 Indonesia Palm Oil Conference expect palm oil prices to decline to US$550-600/t; 3) vegetable oil inventories at Indian ports hit an all-time high; and 4) 30 June USDA report on actual soy plantings will show a higher area than the intentions report.

Positive for vegetable oil prices is Oil World projects the stock-to-use ratio for global 17 oils and fats will decline to 10.3% in the 2009/10 season versus 10.4% in the current 2008/09 season.

We remain bearish on palm oil, as we expect supply to recover (reversal of tree stress, seasonally high production) while exports to wane (exports to India unsustainable, restocking is over). Maintain UNDERWEIGHT on Malaysian palm oil stocks and OVERWEIGHT on Indonesian palm oil players. El Nino is the wild card.

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