Rains bring prospects of new highs for crude palm oil futures

OBSERVATIONS: Rising floodwaters in most parts of the country lifted the Kuala Lumpur CPO futures market to a 14-week high last week. And if the weatherman’s forecast is any guide this market can expect to hit new highs in the near-term future.

The actively-traded February 2010 contract settled at the intra-week high of RM2,486 a tonne, over the week. Closing at the absolute high point of the week’s trading range is a bullish candlestick pattern pointing to more upside movement ahead.

The north-east monsoon which lashed most parts of the country was the principal catalyst behind this market’s well over RM250 leap in price over the past fornight. TV newscasts of the many landslips caused by rainstorms and floods in rural areas contributed to bullish sentiment.

For sure the floods not only haved hampered the harvesting of palm oil fruit, they also must have disrupted the logistics of transporting the fresh fruit bunches to the refineries and palm olein to the ports for export. What’s more, the weather forecast is for more rainstorms – and therefore more floods – in the near-term future.

And fortuitously, at least for market bulls, export market monitors Societe Generale de Surveillance (SGS) and Intertek Agri Services (IAS) chimed in with scintillating export estimates. SGS and IAS’ combined export estimate of an average of some 696,000 tonnes for first half November 2009 was not only the highest for any month-to-date estimate this year, it also was about 126,000 tonnes or 17.0 per cent higher than that for the corresponding period in October 2009. That bodes well for a reduction in end-November 2009 stocks of palm oil.

Conclusion: This market can be expected to make more headway on the upside in early trade this week, before coming up against the immediate RM2,500 a tonne overhead resistance level.

RAIN RAIN DON'T GO AWAY ........ :P