La Niña and FCPO - LCChong


On 26 Oct 2017, MIDF released one report: “La Niña by year end?” I am not here to argue whether their forecast is reasonable or not. No one knows what will happen in the future.

Here, I want to share whether there is any strong correlation between La Niña and FCPO prices.

The hypothesis is strong La Niña will cause low production of CPO, thus FCPO prices will increase, and vise versa.

Let check the history…

From 1987 to 2006

There are three La Niña recorded. During three incidents of La Niña, FCPO prices dropped significantly. On the other hand, FCPO prices surged during and after El Niño (the green line above 0.5).

From 2006 to 2017

Strong La Niña (2007-2008) – FCPO was very bullish, but is it due to La Niña? I think it was the weak USD contributed to the bullish price movement of FCPO, not La Niña.

Strong La Niña (2010-2011) – FCPO was very bullish 5-6 months only, after that, FCPO went south. Weak USD was the one pushing up FCPO in that 5-6 months.

In addition, let’s have a look of the following chart. Is there any obvious and clear correlation between La Niña and CPO stock level?