Highlights

A La Nina event is expected to sustain itself into early 2017, resulting in an early onset rainy season, and providing relief to Indonesia's palm oil industry from the dryness experienced throughout the Sumatera and Kalimantan production areas. MY 2016/17 production is thus expected to exceed 2015/16 production with 35 million MT. Indonesian palm oil consumption is led by biodiesel consumption. Indonesia's Ministry of Energy and Mineral Resources reports that around 1.9 MMT of biodiesel were distributed between January and September 2016. Total palm oil consumption is expected to reach 3.6 MMT in MY 2015/16 and 2016/17, as the government has announced that allocations will not increase in the first half of 2016/17. Indonesian soybean production has declined slightly, as wet weather has prompted farmers to switch to more lucrative corn and rice crops

Oil, PalmProduction

Indonesia has started its recovery period after facing extended dryness due to 2015's El Nino event. Ocean surface temperatures in the equatorial Pacific have decreased, indicating the transition to a weak La Nina. The La Nina event is expected to sustain itself into early 2017, resulting in an early onset rainy season, and providing relief to Indonesia's palm oil industry from the dryness experienced throughout the Sumatera and Kalimantan production areas. The Climate Prediction Center forecasts the possibility of a weak La Nina at 75 percent during the October-November-December 2016 period, and a 64 percent possibility during the November-December-January period. BMKG reports that high rainfall is expected to hit the Southern Sumatera coast and West Kalimantan in December.

Based on the early onset of the rainy season and increased confidence that Indonesia will recover to normal rainfall levels, palm oil production is expected to respond positively. According to newly available production data from the Indonesian Palm Oil Association (GAPKI), local production has recovered to levels above 3 million tons per month. At this rate, Indonesia is on target to produce 32 million MT during the 2015/16 marketing year (MY). Assuming the continuation of favorable weather and the subsequent recovery of drought-stressed oil palm plantations, MY 2016/17 production is on target to exceed 2015/16. Post thus increases its production estimate to 35 million MT.

Consumption

Indonesian palm oil consumption is being led by the expansion of Indonesia's palm oil industry.Following the 2015 drop off in biodiesel blending due to declining export demand and an ineffective domestic support program, Indonesia created a new support mechanism that jump started biodiesel blending in late summer 2015. The new program collects funds via a levy charged on palm oil exports, and is used to subsidize the differential between fossil fuels and biodiesel. Post estimates that Indonesia's palm oil levy will be able to collect 1.2 billion dollars per year. At this rate, assuming that the fossil fuel/biodiesel price spread avoids major fluctuations, Indonesia could blend up to 3.2 million MT of biodiesel. (Post notes that Indonesian diesel fuel (non-biodiesel) is set as per Indonesia's fuel subsidy program).

Indonesia's Ministry of Energy and Mineral Resources (MEMR), reports that around 1.9 MMT of biodiesel were distributed between January and September 2016. Biodiesel consumption is concentrated in the on-road category, and is mainly distributed through state-owned fuel company Pertamina.

MEMR has taken steps to diversify distribution of biodiesel to private companies, having recently enacted MEMR regulation 26/2016. Industry contacts report, however, that regulation 26/2016 does not incentivize private sector players to participate. As a result, biodiesel allocations for the November 2016 to April 2017 period are expected to reach 1.312 MMT for Pertamina and 18,270 MT for the private sector.

Based on recent biodiesel production data, Post revises industrial domestic consumption up to 3.6 MMT in MY 2015/16 and MY 2016/17. MY 2016/17 estimates are unchanged from the previous year, considering that the GOI's biodiesel allocations for the first half of the year are unchanged from the previous six month period. Industrial domestic consumption includes 1 MMT of non-biodiesl consumption and 2.6 MMT of biodiesel consumption. Biodiesel consumption includes 2.45 MMT for the transportation sector and 150 thousand MT for electricity generation. Domestic food consumption is expected to expand at approximately the same with the population growth. As a result, total Indonesia palm oil consumption is set at 9.62 MMT for MY 2016/17.

Trade

Indonesian palm oil exports fell nine percent during the January-September 2016 period compared to the same period in 2015 (17,177 thousand MT in 2016 verses 18,898 thousand MT in 2015). The decline in exports is related to increasing palm oil prices, which reached $651/MT in October 2016, compared to a low of $483/MT in September 2015. Rising palm oil prices are likely due to production declines resulting from the 2015 El Nino, as well as growing demand from Indonesian biodiesel blenders. Despite the year on year decline, GAPKI data shows exports slightly above previous Post estimates. MY 2015/16 exports are therefore revised to 23.5 MMT. 2016/17 exports are also revised to 25 MMT, based on an expected increase in exportable supplies.

Palm oil exports by destination, indicate slight declines in shipments to India and China. Traders note that stronger palm oil prices prompted a switch to soy oil, resulting in a five percent drop off in Indonesian palm shipments to India. Chinese palm oil imports from Indonesia also fell off due to the release of Chinese rapeseed oil reserves, offsetting some Chinese import demand. U.S. imports are up slightly, likely in response to the U.S. blender's credit, which subsidizes biodiesel consumption.

Stocks

MY 2016/17 palm oil stocks are expected to grow to 1.786 MMT, reflecting increasing production. MY 2015/16 ending stocks are set at 1.406 MMT, reflecting strong domestic consumption through biodiesel blending.

Oil, Palm

Oil, Palm

Market Begin Year

2014/2015

2015/2016

2016/2017

Oct-14

Oct-15

Oct-16

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Planted

0

0

0

0

0

0

Area Harvested

8540

8540

8965

8965

9200

9200

Trees

0

0

0

0

0

0

Beginning Stocks

3210

3210

2834

2426

2264

1406

Production

33000

33000

32000

32000

35000

35000

MY Imports

8

0

0

0

0

0

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

36218

36210

34834

34426

37264

36406

MY Exports

25964

25964

24000

23500

26000

25000

MY Exp. to EU

3749

3800

3500

3500

3500

3500

Industrial Dom.

2000

2000

3100

3600

3500

3600

Food Use Dom. Cons.

5100

5500

5150

5600

5250

5700

Feed Waste Dom.

320

320

320

320

350

320

Total Dom. Cons.

7420

7820

8570

9520

9100

9620

Ending Stocks

2834

2426

2264

1406

2164

1786

Total Distribution

36218

36210

34834

34426

37264

36406

Soybeans

Production

Field observations in West Nusa Tenggara (NTB) confirm that Indonesian soybean farmers are managing higher levels of rainfall than in 2015, when Eastern Indonesia faced El Nino-induced dry weather. Farmers report that the additional moisture has increased pest and disease pressures, lowering bean quality. Additionally, 2016/17 soybean plantings have decreased due to a switch to more lucrative corn plantings with the return of rainier weather. Post notes that the switch from soybean plantings to corn follows the departure of drier El Nino conditions in 2015/16 which were poorly suited for dryland corn production. Additionally, farmers continue to report that they favor corn plantings over soybean, when possible, due to their expectation of higher, more stable returns on corn production. Given wetter conditions, increased disease pressures, and increasing corn plantings, Post lowers its MY 2016/17 planting estimate by 15,000 MT to 565,000 MT in MY 2016/17. MY 2015/16 production estimates are revised from 600,000 to 580,000 MT based on farmer reports that additional soybean planting area was converted to mung bean production. Farmers noted that mung beans paid higher profits and were better adapted to El Nino growing conditions due to their shorter production cycle. Indonesian soybean production is concentrated on Java (62 percent) and NTB (13 percent), with the remaining 25 percent spread throughout Sumatera, Sulawesi, and Kalimantan. Soybean is typically planted as a dry season leguminous crop between paddy or corn plantings. NTB farmers view soybean plantings primarily as a cover crop, and are reluctant to invest in higher-yielding cultivation methods since soybean margins are low. As a result, NTB soybean fields are often seeded by broadcasting, receive minimal plant protection, and are excessively weedy. Post notes that soybean yields in NTB are approximately (1 to 2 MT/HA), implying significant room for yield increases if farmer's faced better incentives.

Consumption

Indonesian soybean consumption is concentrated in the food use category, primarily as an ingredient for tempeh and tofu. Indonesian tempeh and tofu producers prefer U.S. soybeans due to their consistent size, color and quality. As a low-cost protein source, tempeh and tofu consumption is widespread throughout Indonesia, implying that consumption will remain relatively stable, increasing with population growth. Based on these factors, Post expects Indonesian soybean consumption to increase by 60,000 MT to 2.89 million MT in MY 2016/17. Post's MY 2015/16 import estimate is revised up by 30,000 MT to 2.83 million MT, reflecting higher imports.

Trade

MY 2015/16 soybean imports are estimated at 2.29 MMT, based on trade data. Post contacts cite favorable prices and steady demand as favorable conditions for year-on-year growth. Import growth is further driven by declining soybean production in Indonesia. As mentioned in the consumption section, soybean consumption (and therefore imports) is expected to expand in sync with population growth. 2016/17 imports are estimated at 2.32 MMT, also in line with population growth. Looking forward into the coming year, trade contacts indicate no major disruptions are expected. However, factors such as currency fluctuations and Indonesian import policies have the potential to disrupt trade.

Stocks

MY 2015/16 ending stocks are revised up to 78,000 MT, reflecting higher imports. MY 2016/17 ending stocks are estimated at 72,000 MT, also reflecting the estimated import increase.

Oilseed, Soybean

Market Begin Year

Indonesia

2014/2015

2015/2016

2016/2017

Oct-14

Oct-15

Oct-16

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Planted

460

500

450

490

450

480

Area Harvested

430

450

450

440

450

430

Beginning Stocks

182

182

65

35

64

78

Production

630

630

600

580

600

565

MY Imports

2006

2006

2300

2294

2400

2320

MY Imp. from U.S.

1900

1945

2200

2270

2300

2300

MY Imp. from EU

0

0

0

0

0

0

Total Supply

2818

2818

2965

2909

3064

2963

MY Exports

3

3

1

1

1

1

MY Exp. to EU

0

0

0

0

0

0

Crush

0

0

0

0

0

0

Food Use Dom. Cons.

2720

2750

2870

2800

2970

2860

Feed Waste Dom.

30

30

30

30

30

30

Total Dom. Cons.

2750

2780

2900

2830

3000

2890

Ending Stocks

65

35

64

78

63

72

Total Distribution

2818

2818

2965

2909

3064

2963