Highlights

Indonesian palm oil production is expected to benefit from favorable weather conditions in the upcoming months, fueling production increases. Based on favorable weather conditions, Post maintains its Indonesian palm oil production estimate at 36.5 MMT in MY 2017/18 and 34 MMT in MY 2016/17. January-May 2017 Indonesian palm oil product exports were 29 percent higher than the corresponding period in 2016. 2016/17 exports are thus revised up to 25.5 MMT and 2017/18 exports are revised to 26.5 MMT. Post revises MY 2016/17 soybean imports up to 2.37 MMT based on increased imports in advance of the Ramadan period. The MY 2017/18 estimate remains unchanged at 2.45 MMT.

Production

Indonesian palm oil production is expected to benefit from favorable weather conditions in the upcoming months, fueling production increases following poor weather in 2016. The Climate Prediction Centre (CPC/IRI) reported warmer than average sea surface temperatures in the east-central Pacific Ocean during June 2017. Despite warm sea temperatures however, the CPC favors neutral weather conditions slightly over an El Nino event, with the probability of an El Nino event declining over time. Local weather agency (BMKG) forecasts medium precipitation (100-300 mm) will hit the eastern cost of Sumatera and most of Kalimanta. As a result of these favorable weather conditions, Post maintains its Indonesian palm oil production estimate at 36.5 MMT in MY 2017/18 and 34 MMT in MY 2016/17.

Indonesian palm area expansion has slowed as minimal lands remain available for planting in Sumatera and Kalimantan. Current plantings are focused on replanting using higher-yielding cultivars, while other new planting may also be originating from smallholders converting rubber plantations to palm oil, a change fueled by low rubber prices. Overall planting expansion is thus occurring at a rate of less than one percent. This is further verified by NGOs using satellite imaging to monitor deforestation.

Consumption

Indonesian CPO consumption is divided between cooking oil and biodiesel. Indonesian demand for biodiesel is supported through the Indonesian biofuel industry’s palm oil levy, the revenues of which are primarily used to offset the domestic price spread between fossil diesel and biodiesel. Under this program, Indonesia has achieved blending rates close to 20 percent, the highest in the world. The Oil Palm Plantation Fund Management Agency (BPDPKS), (charged with managing the fund), reports that funds collected through the levy in 2016 reached IDR 11.7 trillion (USD 874 million). More than 90 percent of the fund was used for the biodiesel blending program, thus covering 3.1 MMT of biodiesel for domestic consumption in 2016. As of May 2017, BPDPKS has collected IDR 5.5 trillion (USD 410 million) from the export levy.

Post revises its 2016/17 industrial consumption estimate up to 3.7 million. 2016/17 biodiesel production is on a similar pace as in 2015/16. However, production in October, November, and December of 2015 was down by approximately 200,000 MT due to the El Nino event and low CPO supplies. The corresponding period in 2016 is expected to reach higher levels due to more optimal palm oil production conditions. However, MEMR announced procurement levels down to 1.1 MMT (from the average procurement of 1.3 MMT) for the May to October period of 2017, implying that consumption will not fully recapture the 200,000 MT tons lost in 2015. Post therefor increases its 2016/17 industrial consumption estimate by 100,000 MT. Post expects that 2017/18 consumption will further increase to 3.8 MMT, assuming normal CPO production. Overall palm oil consumption is thus set at 9.74 MMT in 2016/17 and 9.895 in 2017/18.

Palm oil prices declined steadily in 2017, reaching $621 per MT in June from $726 per MT in early 2017. Low palm oil prices appear to be the result of supply side changes as CPO production recovers from the 2015/16 El Nino. In correlation with declining CPO prices, the palm oil/soybean oil price spread has grown, reaching $84 per MT in June 2017, from $45 per MT in January 2017. January-May 2017 Indonesian palm oil product exports were 29 percent higher than the corresponding period in 2016. Increasing exports were led by India, which were 818 thousand MT higher in January-May 2017 , attributable to declining palm oil prices during the first half 2017. Based on export performance in the first half of 2017, Post expects exports to increase. Therefore, 2016/17 exports are revised up to 25.5 MMT and 2017/18 exports are revised to 26.5 MMT.

Stocks

Considering increasing export performance and strong domestic consumption, Post revises its ending stock estimate to 1.077 MMT in MY 2016/17. 2017/18 ending stocks are slightly increased to 1.182 MMT, considering increased production estimates. GAPKI, the Indonesian palm oil producer’s association, also confirms that stocks are declining for the cited reasons.

Production, Supply and Demand Statistics

Oil, Palm

2015/2016

2016/2017

2017/2018

Market Begin Year

Oct-15

Oct-16

Oct-17

Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

0

0

0

0

0

0

Area Harvested

8965

8965

9200

9200

9300

9300

Trees

0

0

0

0

0

0

Beginning Stocks

2734

2734

2409

2317

1939

1077

Production

32000

32000

34000

34000

36000

36500

MY Imports

8

8

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

34742

34742

36409

36317

37939

37577

MY Exports

22905

22905

25000

25500

25500

26500

MY Exp. to EU

3500

3200

3500

3400

2800

3500

Industrial Dom. Cons.

3600

3600

3600

3700

3650

3800

Food Use Dom. Cons.

5500

5600

5550

5700

5600

5750

Feed Waste Dom. Cons.

328

320

320

340

350

345

Total Dom. Cons.

9428

9520

9470

9740

9600

9895

Ending Stocks

2409

2317

1939

1077

2839

1182

Total Distribution

34742

34742

36409

36317

37939

37577

Oilseed, soybean

Production

Soybean planted area has declined in the first half of 2017. This trend is fueled by increasing corn prices and more stable returns, enticing farmers away from soybeans when possible. The planting switch from soy to corn is further supported by a return to wetter planting conditions. The 2015/16 El Nino event resulted in drier weather, which disfavored dryland corn plantings. Post’s soybean production estimate thus remains stable at 565,000 MT in MY 2016/17 and 540,000 MT in MY 2017/18. More than 60 percent of Indonesia soybean production is on Java. The remainder is spread throughout West Nusa Tenggara (13 percent) and other islands. Soybean is typically planted as a dry season leguminous crop between paddy and corn plantings.

Consumption

Indonesian soybean consumption is dominated by the human food category, with soybeans being used in the manufacture of tempeh and tofu. As low cost staple proteins, their consumption is stable, allowing for growth based on population increases. Given these factors, Post’s soybean consumption estimate remains unchanged, reaching 2.86 MMT in MY 2016/17 and 2.95 MMT in MY 2017/18.

Trade

Indonesia’s soybean consumption is largely met by imports as local production is limited. More than 95 percent of imported soybeans originate in the United States, as US beans meet Indonesian tempeh producer’s requirements.MY 2015/16 is revised to 2.274 MMT, reflecting final trade data. Trade data shows shipments to Indonesia during the October 2016 to April 2017 period are 15 percent higher compared to corresponding period in the previous year. Trade contacts indicate no major disruptions are expected in the coming year. Post revises MY 2016/17 imports up to 2.37 MMT based on increased imports in advance of the Ramadan period. This is further supported by trade data from GTIS. The MY 2017/18 estimate remains unchanged at 2.45 MMT.

Stocks

As Indonesian soybean production soybean decreases, imports and consumption are growing. MY 2016/17 ending stocks are thus revised up to 122,000 MT while MY 2017/18 ending stocks are revised down slightly to 121,000 MT.

Production, Supply and Demand Statistics

Oilseed, Soybean

2015/2016

2016/2017

2017/2018

Market Begin Year

Oct-15

Oct-16

Oct-17

Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

490

490

480

480

450

470

Area Harvested

440

440

430

430

420

420

Beginning Stocks

65

65

64

88

63

122

Production

580

580

565

565

540

540

MY Imports

2274

2274

2400

2370

2600

2450

MY Imp. from U.S.

2251

2251

2300

2350

2400

2400

MY Imp. from EU

0

0

0

0

0

0

Total Supply

2919

2919

3029

3023

3203

3112

MY Exports

1

1

1

1

2

1

MY Exp. to EU

0

0

0

0

0

0

Crush

0

0

0

0

0

0

Food Use Dom. Cons.

2824

2800

2935

2860

3100

2950

Feed Waste Dom. Cons.

30

30

30

40

41

40

Total Dom. Cons.

2854

2830

2965

2900

3141

2990

Ending Stocks

64

88

63

122

60

121

Total Distribution

2919

2919

3029

3023

3203

3112