02/04/2013 (Borneo Post) - Along with already high inventory levels of crude palm oil (CPO), the recovery of soybean stock levels is putting downward pressure on the dwindling selling price for the commodity.

In a research report yesterday, Lim Cheong Sun from the research wing of Kenanga Investment Bank Bhd (Kenanga Research) expected the general news flows for the plantation sector in the second quarter (2Q) of 2013 to be ‘likely discouraging’.

“Bumper soybean crop from South America is expected to pressure soybean oil prices and indirectly, CPO prices as well. In addition, the high palm oil inventory globally should cap CPO prices on the upside to below RM2,800 per metric tonne (mt) in the near term.

“In the next earnings season in May 2013, companies’ 1Q13 earnings may continue to disappoint as the average CPO price recorded at RM2,324 per mt is still 19 per cent below the consensus estimate of RM2,860 per mt and 28 per cent lower year on year (y-o-y) against 1Q12’s RM3,218 per mt.

“Hence, we believe there will be more consensus earnings downgrades for 2013 and this should cause the planters’ share prices to underperform against other stocks,” the analyst outlined.

RHB Research Institute Sdn Bhd (RHB Research) observed that a US Department of Agriculture (USDA) report released last Friday put soybean intention acreage at 77.1 million acres – the fourth highest on record.

The USDA report had also said that the US soybean stockpile stood at 999 million bushels, down by 27 per cent y-o-y but higher than expected. Soybean prices had dropped on the same day due to news of the elevated inventory level.

“Given the extremely adverse weather US last year, it would not be surprising if production recovers this year should the weather turn out to be normal.

“The high USDA soybean stockpile could continue to pressure palm oil price. The commodity’s price fell RM33 last Friday.

“However, we believe that palm oil price will be relatively resilient compared with that for soybean oil due to its substantial discount against the latter.

“As the huge spread takes into consideration a shortfall in soybean supply – which has turned out to be not as tight as expected – this gap may return to a more normal US$50 to US$200 per tonne,” RHB Research opined.

A smaller CPO to soybean oil price discount means that CPO loses some of its attractiveness and competitiveness as it is a substitute for the latter in global edible oil markets.

According to Bloomberg yesterday, CPO price fell to the lowest level in more than two months on concern that exports from Malaysia (the second-biggest producer after Indonesia) might decline as Europe’s debt crisis and a slowing Chinese economy curbed demand, according to Bloomberg yesterday.

The contract for delivery in June dropped as much as 1.1 per cent to RM2,353 ringgit per mt on the Malaysia Derivatives Exchange yesterday, the lowest level for the most-active contract since January 11.

CPO prices had fallen 2.5 per cent in the first quarter (1Q), the fourth quarterly loss in the worst streak since 1999, Bloomberg added.