MIDF: Lower US soybean supply a positive for CPO
The Star Online (03/04/2018) - PETALING JAYA: MIDF Research expects the United States Department of Agriculture’s (USDA) report on less soybean to be planted in the US this year as positive news for crude palm oil (CPO) price.
The research unit said lower soybean supply will eventually result in lower soybean oil (SBO) supply.
“This should boost SBO price and as a result improve CPO demand. Note that the long term correlation between CPO and SBO exceeds 0.90 as both are used as substitute for each other in food and industry use,” it said in its latest report.
According to the USDA Prospective Plantings report, US soybean planted area in 2018 is estimated to decline 1% year-on-year (y-o-y) to 89.0 million acres in US.
This is lower than even the lowest prediction in Bloomberg survey.
MIDF said in its latest report that “we gather that planted acreage intentions are down or unchanged in 20 of the 31 states.
“Key states with estimated decline of 100,000 acres or more include Iowa, Kansas, Michigan, Minnesota, Nebraska, North Carolina, and Ohio.
“The inventory is at 2.11 billion bushels as of March 1, up 21% y-o-y from same period last year.”
Hence, it is reiterating a positive view on the sector due to improved demand outlook for palm oil in 2018.
“We believe that the good global economy growth in 2018 should lead to higher consumption per capita.
“On the supply side, consensus estimate of huge supply growth may not be fully realised due to ongoing labor shortage and the potentially high replanting activity in Indonesia,” it added.
It is worth to note that Indonesia plans to replant up to 165,000 ha of oil palm plantation land this year.
Therefore, this could limit the supply surge by between 0.5 to 0.6 million tonnes assuming oil yield of 3.5 tonnes per ha.
MIDF Research’s top picks are Kuala Lumpur Kepong Bhd image: https://cdn.thestar.com.my/Themes/img/chart.png (KLK) and Genting Plantations Bhd image: https://cdn.thestar.com.my/Themes/img/chart.png.
“We like KLK for its earnings resiliency and decent dividend yield of 2.5% while Genting Plantations is expected to its FFB growth at 13% y-o-y to be the strongest among planters under our coverage.
“This is due to new contribution from recently acquired estate of 12,893ha and 5000ha coming to maturity in Indonesia.”