New Indonesia Palm Export Curbs Drive Edible Oil Prices Higher

Edible oil prices soared after Indonesia, the top producer and exporter of palm oil, announced it will further tighten restrictions on palm oil exports. The move comes as already squeezed global edible oil supplies, and stalled shipments of sunflower oil from war ravaged Ukraine, are fueling food-price inflation worldwide. 

In a bid to stem rising domestic food prices, Indonesia said local producers must now set aside 30% of their planned exports for sale domestically, an increase from 20% that was enacted last month. Producers must also declare their domestic sales plans in order to receive export permits. 

The move pushed Malaysia palm oil futures to record highs, while the Dalian palm olein contract closed limit up. CBOT soybean oil continues to trade near its highs. Indonesia and No. 2 producer Malaysia combined provide nearly 90% of global palm oil supplies. Palm oil is the most popular edible oil, used widely as an ingredient in manufactured foods and as feedstock for producing biofuels.   

Trade flows in edible oils have faced significant disruptions. Malaysia’s palm production has been weak for months due to labor shortages and heavy precipitation. The Black Sea region accounts for nearly 80% of all sunflower oil exports, but Russia’s invasion of Ukraine has halted sunflower oil exports from the region. 

One bright spot is Argentina, the largest exporter of soybean oil. Argentina’s soybean crop has rebounded from a previously weak outlook, as Gro reported here, and Gro’s Argentina Soybean Yield Forecast Model is currently indicating that production will roughly match last year’s output.  

As global vegetable oil supplies have tightened, prices have risen substantially for more than a year, hitting profit margins of packaged food manufacturers. Gro’s VegOil Feedstock Price Index, which tracks changes in various oils used in food manufacturing, is up 26.2% from a year earlier. The index is part of Gro’s newly launched Custom Price Index application, which enables food manufacturers to create price indices of key ingredients, using customer-selected inputs and weights, and track inflationary pressures.

Indonesia’s additional export curbs on palm oil echo restrictions on commodity exports by other countries, including Russia and Argentina, seeking to ensure domestic supplies and price stability. Among recent moves, Hungary banned all grain exports and Moldova halted exports of wheat, corn, and sugar. 

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