Basis risk in palm oil market after Indonesia growth
Palm oil hedging has continued to grow healthily in the face of wild price swings over the past 18 months. But there is still no viable Indonesian contract, leaving the industry exposed to basis risk from the world’s biggest producer
A little under 15 months ago, talk in the palm oil industry was of crude palm oil (CPO) prices breaching 4,000 ringgit/tonne ($1,270). CPO, used as a feedstock in everything from foodstuffs to cosmetics to biofuel, had been on an upward trend since September 2011 and nobody foresaw the China-led demand plunge that sent the price from over 3,500 ringgit/tonne in April to close to 2,000 ringgit/tonne during December.
Front month prices – the shortest duration contract that can be purchased in the
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