European Sentiment Weighs on CPO Prices

"For the next week, the price of Fresh Fruit Bunches (FFB) of CPO Riau in the Indonesian commodity exchange has plummeted by Rp135.67 per kg, from Rp2.081,78/kg the previous week to Rp1.946,11 for a 10-20 year-old palm," said Rusdi, Secretary of the CPO FFB Price Setting Team for Riau, in Pekanbaru, Tuesday (4/10/2016).

According to Rusdi, the trend was no different from Malaysia, which also showed weakening prices.

The drop in Riau CPO prices has also been influenced by the accusations of the government's lack of wisdom in managing the palm oil industry, such as deforestation and destruction of wildlife.

However, he said, the Malaysian government has issued a refutation of this allegation submitted by The Malaysia Palm Oil Council (MPOC) CEO Dr Yusof Basiron.

"Malaysia has implemented an environmentally friendly palm oil industry since requiring palm oil businesses to have an MSPO certificate, in the same way Indonesia requires an ISPO certificate," he said.

Meanwhile, the German government and industry are also concerned about the environmental impact of palm oil cultivation.

German Chancellor Angela Merkel previously raised issues about the sustainability of oil palm plantations in Malaysia. In response, Malaysian Prime Minister Datuk Seri Najib Razak visited Germany to alleviate these concerns.

"Given these circumstances, the price of CPO futures is expected to weaken in subsequent trading with negative sentiment from Europe. However, it will also be influenced by the movement of the price of crude oil, which if it continues to strengthen will boost CPO prices and vice versa," he said.

Other contributing factors are the balance of supply and demand, the price of similar commodities or substitutes, and the policies of importing countries.

Other commodities that fell this week were oil, corn and soybeans, although their price drops were not as steep as for CPO.

He noted that the price of CPO FFB for the Riau Province from 5 to 11 October 2016 was as follows: Rp1.393,91/kg for three-year-old palms, Rp1.555,12/kg for four-year-old palms, Rp1.663,49/kg for five-year-old palms, Rp1.713,73/kg for six-year-old palms, Rp1.778,75/kg for seven-year-old palms, and Rp1.834,29/kg for eight-year-old palms.

The price of CPO FFB Riau for nine-year-old palms was Rp1.894,01/kg, 21-year-old palms Rp1.900,89/kg, 22-year-old palms Rp1.854,95/kg, 23-year-old palms Rp1.809,73/kg, and 24-year-old palms Rp1.791,50/kg, while the price for 25-year-old palms was Rp1.718,57/kg. The K index was 91.95 percent with a CPO price of Rp7.931,56/kg and kernel at Rp7.487,29/kg.