Lower soybean output and better palm oil exports to keep CPO prices above RM2,600: Analysts

PETALING JAYA: Lower soybean production and better palm oil exports are likely to sustain crude palm oil (CPO) prices above RM2,600 a tonne on average this year, with most analysts putting the figure at RM2,700.
MIDF Research has maintained its positive outlook on the plantation sector, expecting CPO prices to average RM2,700 a tonne this year.
The United States Department of Agriculture (USDA) has projected a slight decline in global soybean production in April to 284 million tonnes, down 1.4 million from last month. This was mainly due to the expectation of lower soybean production in Brazil, which is one of the major world soybean producers.
USDA also forecasts Brazil's soybean production in April to be 87.5 million tonnes, down 1 million from that in March.
"The expectation of lower soybean supply has driven soybean prices higher and widened the discount of palm oil to soybean.
Currently, CPO price is 13.8% lower than soybean price (the discount in value term is US$131 per tonne). If the discount continues to widen, this will help CPO price to sustain above the current level as buyer will prefer more palm oil due to its price attractiveness," said MIDF in its report last Friday.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) has maintained its neutral call on the sector, keeping its 2014-2015 CPO price forecast at RM2,700 per tonne, with positive factors being improved demand outlook and better production cost visibility.
"Exports declined by 8% month-on-month to 1.24 million tonnes, mainly on lower exports to China (-28%), India (-30.2%) and Pakistan (-55.6%). We believe the weak shipments to the key markets is due mainly to the relatively high palm oil stockpile in China and the reduced price attractiveness of CPO against soybean oil during the month (which in turn deterred price sensitive CPO consumers from buying aggressively)," it said.
However, independent market surveyor Intertek reported that palm oil shipments from Malaysia rose by 4.4% month-on-month to 307,000 tonnes in the first 10 days of April 2014.
"While the uptrend in CPO output will likely continue, we believe higher CPO exports will likely bring down CPO stockpile in Apr 2014 as the recent improvement in the price attractiveness of CPO price (arising from lower CPO price and higher soybean oil price) will likely boost CPO exports in the near term."
HLIB Research said catalysts for the sector include earlier-than-expected recovery in the world's major economies, resulting in higher edible oil demand and prices; timely implementation of higher biodiesel mandate in Indonesia and Malaysia; and weather uncertainties which would result in supply distortion, hence boosting prices of edible oil.
Meanwhile, risks include higher-than-expected soybean yield and soybean planting, resulting in lower soybean prices and hence lower prices of CPO, and if India imposes higher import duty on CPO.
PublicInvest Research maintained its overweight call on the sectors, favouring exposure to stocks like Genting Plantations, Sime Darby, Ta Ann and TSH Resources.
"Monthly CPO production in Peninsular Malaysia and East Malaysia were up 18.8% and 15.9% respectively. Overall, Malaysia's production has risen 17.3% to 1.49 million tonnes while fresh fruit bunch (FFB) yield averaged at 1.41 tonnes per hectare, which is significantly higher than 1.22 tonnes per hectare in February. We expect production to be stronger in the coming months after the end of the low-cycle period," it said.
PublicInvest Research also expects better exports in April based on Intertek's report of higher exports in the first 10 days of April.
"The weaker CPO prices, which have contracted more than 5.5% in the last one month, might attract demand from major consuming countries ahead of the Hari Raya celebrations in July as well as the concern on El Nino, which might occur in June-August."