Reports CTRM for Agricultural and Soft Commodities

CTRM for Ags & Softs Palm Oil Trading Palm oil is being traded as a commodity via futures and options contracts on the Bursa Malaysia in Kuala Lumpur, Malaysia. While this exchange provides the requisite hedging opportunities for palm growers and oil producers, the exchange has seen increasing use by palm oil speculators, as well.Given the somewhat interchangeable nature of edible oil and fats, the Crude Palm Oil Futures (FCPO) contract on the Bursa also functions as a benchmark for pricing other oil and fat trading agreements. “Circle, Bypass and Washout Settlement: In Palm Oil industry, there exists a very liquid physical market namely Port Klang, PasirGudang, Dumai and Belawan. These are referred to as physical paper trades and most of them are financially settled through brokers. Brokers identify the opportunity for financial settlement and the parties involved are obliged to financially settle as per industry standard PORAM contract terms. For a CTRM system, it becomes a challenge to financially settle these trades as external trades are typically involved. Sometimes, as many as 40 parties may be involved in a circle settlement.” With increased demand driven by food processors and biofuel producers, palm oil has at times seen production falling short.Weather events (including too much precipitation) and lack of available plantation land have limited crop growth in relation to that demand, and prices have been somewhat volatile in the past few years. Though many producers continue to seek ways to increase production, increasing prices could drive demand into other edible oils in the future and impact the growth of the market. Historically, much of the trading in palm and other edible oils is still managed outside of public view, with small and mid-sized regional producers, traders and merchants making up much of the physical trading activity. However, in the last decade, with growing demand, the large global players have taken more active positions in the market and have been building palm oil businesses that reach from the plantation to the finished consumer products. Cargill and Wilmar are two such companies seeking greater vertical integration and control of their supply chains. Soy and corn oil are a common substitution for palm oil. Given that these crops can be grown more widely than palm, they do represent a limiting factor in the escalation of palm oil prices, as consumers will move once the perceived value of palm oil has been reached.For traders, these alternative crops do provide some utility in predicting future prices for soy oil. Joel Lou – Allegro Development Types of Entities Involved in Palm Oil Trading    Producers/growers/plantati ons Agents Brokers   Traders and Merchants Inspectors  Exporters/Importers © Commodity Technology Advisory LLC, 2016, All Right Reserved  CPG companies 40

Reports CTRM for Agricultural and Soft Commodities | Page 41