03/04/2012 (Borneo Post) - Crude palm oil production (CPO) prices are expected to be bullish as the US Department of Agriculture reported planting intentions of only 73.9 million acres for soybean.

“The US planting intentions for soybean saw a 1.4 per cent fall year-on-year. This was 1.9 per cent below consensus estimate of 75.3 million acres,” stated Kenanga Investment Bank Bhd (Kenanga Research) in its research report.

It noted further that soybean continued to lose acreage to corn, of which farmers intended to plant 95.9 million acres.

The research house opined that global soybean supply would still be very tight this year given steady deterioration of the soybean crops in South America due to droughts. As such, CPO prices will benefit from this as it was commonly used as substitute to soybean oil.

“Currently, we have assumed average soybean oil prices of US$1,205 per metric tonnes in 2012. For every one cent per pound upside in soybean oil prices, we expect RM32 upside in our 2012 average CPO prices,” added the report.

Kenanga Research noted that soybean inventory of 1.37 billion bushes was within consensus estimate of RM1.38 billion bushels. Corn inventory of 6.01 billion bushels came in below consensus estimate of 6.17 billion bushels. It explained that corn futures at the Chicago Board of Trade hit its limited up last Friday after increasing US$0.40 to US$6.44 per bushel.

“The better price for corn will result in lower acreage for soybean, hence supporting its prices. CPO prices will benefit from this as it is closely correlated to soybean oil prices,” remarked the research house.

RHB Research Institute Sdn Bhd (RHB Research) mirrored the outlook as it expected CPO prices to remain strong in the first half of this year but weakening in the second half. The Malaysian Palm Oil Board was expected to release its March 2012 CPO statistics next Tuesday. Kenanga Research expected CPO production to decline by 1.5 per cent year-on-year (y-o-y) to 1.4 million metric tonnes, its first decline after 12 months of strong production upcycle.

“Historical trend in the past 10 years suggest that consecutive CPO production increase y-o-y would only last between seven to 13 months. If our estimate for a CPO production decline materialises, there is room for prices to go higher,” the research house predicted.

It added that for every 0.1 million metric tonne decline in CPO production, it expected upside of RM40 in its 2012 average CPO prices estimate.