Where are we in the Palm Oil price cycle?

There are a lot of listed CPO producers in Malaysia, Singapore and Indonesia.

The CPO price is really volatile:

Source: Trading Economics

The latest peak is probably caused covid-19 supply disruptions, and is probably temporary.

Where are we in the commodity price cycle?

Demand

I don't think we can predict demand in the next few years.  There's too many moving parts:

• Used for cooking and in around 1/2 of all supermarket products.  Can be substituted with other vegetable oils - the palm oil price usually tracks soybean oil at a discount.  The demand for use in branded products is inelastic: producers will not temporarily switch from Palm Oil just to save money.  Those using it for cooking may switch to soy or vegetable oils.
• Also some demand for bio-fuel.  Indonesia had mandated its use, but it may not be enforced.  The EU has tried to ban palm oil bio-fuel.
• China announced plans to stop using corn & soybean in animal feed, which probably reduces soybean oil crushing margins, and is good for CPO.
• Demand from India dropped due to covid 19.  (chart)  Palm oil there is used by wholesale buyers, stalls and the F&B industry.  Households prefer more expensive oils.

We are better off looking at supply.

Supply

Palm Oil can only be grown at plus or minus 10 degrees from the equator.  In 2018, Indonesia supplied 56%, by far the most.  Malaysia supplied 28% with the remaining 16% from other Asian, African or South American countries.

The long term factors affecting supply are the number of hectares planted and the age of the trees.  The trees start producing 30 months after being planted, and reach peak yield at 7-13 years.  Production slowly declines since then:

Source: Palm Oil World

This December 2020 CPOPC report explains supply well:

Other figures corroborate this: Malaysian Palm Oil production has been flat for the past 5 years, while Indonesia's has been rising:

Source: Indexmundi (Msia, Indon)

In summary:

• Malaysian CPO production has been flat, while Indonesia's growth has slowed (though is still currently growing enough to meet demand).  
• If both Malaysia and Indonesia catch-up in replanting new trees, it would temporarily remove around 2.6m tonnes (estimated 3.5% of world production).  I guess it would take 4-5 years for production to recover from this, after which it starts exceeding today's numbers.
• El-Nina has unpredictable short term effects on prices.  It may increase or decrease palm oil production, and affect soybean production (substitute for palm oil) in Latin America.

I would say that 2019/20 may have been the bottom of the cycle, but its not clear.  We did not see the type of demand destruction typically associated with the bottom of commodity markets.  But we did see some curtailing of growth.

If we do get a CPO boom, expect supply to catch up with demand in 3-6 years time.