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Minutes of the Palm Oil Industry Analysis and Risk Management Strategy Application Conference

September 14, 2021

 On April 28, 2021, sponsored by CITIC Construction Investment Futures, co-organized by the Malaysian Palm Oil Technology R&D Company under MPOB, Beijing Heyirong Investment Group, and supported by the Dalian Commodity Exchange, "Palm Oil Industry Analysis and Risk Management Strategy Application" The conference was successfully held in Chengdu.

Palm Oil Industry

A total of four guests delivered keynote speeches at the conference, including Tian Yaxiong, Chief of the Futures Agricultural Products Department of China Securities, Zhang Liwei, Director of Decision Service Division of the National Grain and Oil Information Center, Zhou Shiyong, President of Beijing Heyirong Investment Group Co., Ltd., and Professor and PhD of Shanghai Jiaotong University Student tutor Wu Shimin. The guests at the conference deeply analyzed the status of the palm oil industry and the industry's risk management strategies during actual operations. The following are the wonderful views of the conference guests:


Zhang Liwei, Director of Decision Service Division, National Grain and Oil Information Center:

International vegetable oil has entered a high-level shock zone, and the bullish factors have basically materialized. This round of rise has basically peaked. At present, Brazil's soybeans are listed, palm production has resumed, and sunflower oil will continue to be listed in the second half of the year. The oil supply will be loose, and the oil shock is expected to decline. In fact, the recent high prices of oils and fats have continuously refreshed many people by surprise. The overheated market has made the fundamentals selectively ignored. Although the weather is a speculation factor, financial factors and market speculation are the driving force behind it. It is more difficult to determine when to peak. Of course, the decline in exports of the four main vegetable oils will curb the decline in prices in the second half of the year. In the 21/22 season, the most tightly supplied vegetable oil variety is rapeseed oil because of the limited increase in rapeseed production in the EU and Canada.

The growth rate of domestic oilseed oil production is limited, and imports will continue to increase in the future. In terms of planting, soybean planting will drop by more than 10 million mu this year, and rapeseed will increase by 4 million mu. The new crown epidemic has not affected the apparent consumption of domestic vegetable oils, but new changes have taken place in the consumption structure: consumption of small household packaging and small varieties of oil has increased, and feed oil has increased significantly; substitution of animal oil has increased; industrial consumption has increased; reserve stocks have increased; channels And terminal inventory increases.


Forecast of the supply and demand price of vegetable oil in 21 years:

1. The global oil production recovered this year, but the tight supply of vegetable oil can only be effectively improved in the fourth quarter after the new season crops in the northern hemisphere are on the market. Therefore, it is expected that domestic vegetable oil prices will fluctuate at a high level in the 2-3 quarters, and will decline significantly in the fourth quarter;


2. Affected by the increase in meat production this year, domestic consumption of vegetable oil instead of animal oil is expected to decline. However, the replacement of corn by a large amount of rice and wheat has significantly increased the use of feed oil. Coupled with the recovery of catering oil, domestic vegetable oil consumption is expected to increase by 100 in 21 years. Million tons.


3. After the Spring Festival, domestic and international vegetable oil prices continue to hang. Vegetable oil imports in the second and third quarters may be lower than the same period last year. If vegetable oil imports cannot increase significantly in the second half of the year, domestic vegetable oil supply may be tight and support vegetable oil prices.


Wu Shimin, Professor and Doctoral Supervisor of Shanghai Jiaotong University:

The frying resistance of palm oil makes it irreplaceable in food processing, and now palm oil is also the most used fat category. For general consumers, "eat less oil, eat good oil, use good oil" should be the main theme when choosing edible oil.


Scientifically speaking, the specific advantages of palm oil in actual use:

-Palm oil has high oleic acid content and high stability when used in high-temperature frying;

-The non-GMO properties of palm oil make it meet the safety preferences of most consumers;

-The risk factors of palm oil are relatively low, which meets the safety standards of various countries, and more than half of the fats and oils have their own over-standard factors;

-Palm oil is rich in antioxidant factors, and the food made from it is stable and has a long shelf life.


Zhou Shiyong, President of Beijing Heyirong Investment Group Co., Ltd.:

The basis trade model has made the oil industry take huge risks. For example, the lower reaches of the oil industry made money on basis differences last year, and the willingness to hold this year is very strong. However, the basis of this year's trend has caused profits to take back. When everyone is engaged in the basis business, the basis is more risky than the one-off price, and the difficulty of making profit is greatly increased. Therefore, for the industry, the core of corporate profitability is the most worthy of consideration. Especially in the case of hedging failure, how to correctly manage the risk of price fluctuations and make the company obtain stable profits is a compulsory course for companies participating in basis trade.

Trading with rights is an effective way for the industry to break the basis risk, which includes the use of five options: collar option; proportional option; seagull option; accumulative put option; accumulative option. Among them, accumulative put option and accumulative buy option are the most applicable in practice. The core of all option tools is the judgment of the future price situation.

The promotion of rights-containing trading by oil plants is an opportunity for market participants, and the use of rights-containing trading tests the ability of enterprises to refine operations. The trend of industry trade specialization in the future will definitely place higher demands on companies. Therefore, a correct view and use of rights-containing trade will be the key to whether companies can make profits in the long run.


Tian Yaxiong, Chief of the Futures Agricultural Products Division of China Securities:

There are two sources of money in the industry: one is money from product price fluctuations, and the other is money from product awareness; cognitive money is the long-term effective way to make money.

Inflation is difficult to be the main factor driving the rise of commodities, which comes from changes in the relationship between supply and demand. There are irreversible changes in the supply-side market. On the one hand, globalization has allowed low-cost supply to exist forever, and on the other hand, technological advances have led to rapid growth in yields. On the demand side, financial subsidies are a drop in the bucket for many families that have been damaged by the epidemic. With the decrease in income, the people's desire to consume decreases. Therefore, it is difficult for inflation to actually happen in the current market. In the long run, the gap between the rich and the poor has been widening, especially when the economy is under impact, when the value of core assets will gradually be reflected. The non-storable, short shelf life, homogeneity and poor standardization of agricultural products make their value as an investment target not outstanding.

When the profit of commodity production is low or negative, it is always a good strategy for industrial products to make more profits. But for agricultural products, will plantation profits stimulate large-scale expansion? If the answer is yes, then agricultural products are worth shorting. One objection is that with the aging trend, the number of laborers willing to engage in agriculture in developed countries is becoming less and less, and expansion of crops may be unrealistic. However, it should be considered that the east coast of Africa, the Russian Far East, some islands in Indonesia, and southern Brazil have a lot of room for expansion.

Malaysia’s palm oil production growth may be limited. With the increase in the vaccination rate, Malaysia can choose to liberalize overseas labor as an option. However, with the high level of palm profits, many abandoned gardens in Indonesia have been reused, so Indonesia's future growth is extremely variable.


Looking to the future market:

1. The main factor that affects domestic vegetable oil demand lies in national reserves, but there is a high probability that the marginal impact will be smaller.

2. The turning point of global vegetable oil is very dependent on the recovery of labor force in the Malaysian palm industry and the smooth weather in North America. The planting season is the most favorable time for the bulls.

3. The law of the agricultural cycle will not change. High profits will inevitably stimulate both increase in area and yield. The medium-term price is likely to gradually fall from the current level. However, it is expected to remain strong in the first half of the year. Pay attention to the risk of the trade model of selling near and buying far.

4. The trading opportunity lies in the ratio of oil and meal, or the two unilateral transactions.