Relief for food inflation looms as palm oil hits 1-year low

SINGAPORE • A sharp retreat in palm oil prices will likely help to cool the food inflation that’s been gripping the world.

Benchmark futures tumbled almost 8% today to the lowest level in a year. That’s significant for food inflation as palm oil is found in many grocery items, from chocolates to instant noodles to ice cream and shampoo.

The latest slump comes amid forecasts for rising supplies from Indonesia and Malaysia. It also follows a prediction from influential trader Dorab Mistry that palm oil could slide roughly 30% from current levels. The tropical oil could end the year at RM2,500 a tonne, he said, a long way down from more than RM7,000 in April. Futures were at about RM3,500 today.

Prices have nosedived as top producer Indonesia is accelerating exports to clear stockpiles, a move that has intensified competition with supplies from No 2 shipper Malaysia and contributing to higher inventories there. Meanwhile, production is recovering in both countries, while demand looks pretty bleak, according to Mistry, who correctly predicted an earlier price slide.

“Weaker edible oil prices are going to help consumers across the world, but would be a pain for producers,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental.

Commodities, including palm, are also under pressure as central banks including the Federal Reserve are raising interest rates aggressively, hurting the outlook for demand and sapping investors’ appetite for risk.

Palm oil futures for December delivery fell as much as 7.7% to RM3,448 a tonne in Kuala Lumpur, the lowest since June 2021 for a most-active contract. Rival soybean oil lost about 1.5% in Chicago to extend last Friday’s 4.2% drop. — Bloomberg