Published: Wednesday July 25, 2012 MYT 11:19:00 AM
Maybank IB Research maintains Neutral on plantations
KUALA LUMPUR: Maybank Investment Bank Research is maintaining its Neutral view on the plantations sector over the next 12 months and retained its average crude palm oil (CPO) average selling price forecasts of RM3,150 for 2012 (first half of 2012: RM3,200), and RM3,000 (2013-14).
In its sector outlook on Wednesday, it has Buy recommendations on stocks with high production growth including Sarawak Oil Palms and Ta Ann while Singapore-listed Wilmar remained a Sell.
Maybank Research said the 23% rally in third-month soybean prices since early June was driven by the worst drought in the US since 1988. However, soyoil prices (+8%) have lagged, and so have prices of palm (unchanged) and rapeseed (+2%) oil.
"While soyoil price has further upside should soybean crop prospects worsen, palm oil's discount to soyoil is likely to stay high given that upcoming high production months for palm oil," it said.
On Tuesday, the US Department of Agriculture reported that US soybean crop conditions had worsened for the seventh consecutive week. Crop conditions for soybeans have declined to the lowest since 1988.
The report stated 31% of planted area nationwide in the US was rated "good or excellent" (against 65% at the start of the season and 62% a year ago), and 35% is rated "poor or very poor" (against 6% at the start of the season and 11% a year ago).
Maybank Research said this was reflected in the 23% rally in third-month soybean prices since early June to an unprecedented high of US$15.82 per bushel. Soy meal prices jumped 30% and soyoil rose 8%.
The research house said if US crop conditions worsen in the coming two to three weeks, there would be further upside to soyoil, which may lift CPO price as well.
On the outlook for CPO, it said palm oil was entering seasonally high production months, which would ensure ample supply.
As for recent changes in India's import taxes on refined palm oil, it expected these factors to likely to disrupt trade flow in the short term.
Maybank Research also noted that soybean prices at unprecedented highs would encourage farmers in South America to plan even bigger soybean planting areas in 4Q12, which should see soybean prices ease by then.
"The missing elements for a convincing CPO price rally are the absence of a rally in crude oil prices (in the 2008 commodity price rally, Brent crude prices hit a peak of US$143 per barrel versus US$103 on July 23), and the return of a strong El Nio.
The research house retained its average CPO average selling price forecasts of RM3,150 for 2012 (first half of 2012: RM3,200), and RM3,000 (2013-14).
"We maintain our Neutral sector weighting on a 12M view, with key risks to our view being: (i) a worsening eurozone crisis impacting the global economy (negative for CPO prices) and (ii) monetary easing in the eurozone and/or the US (positive for prices)," it said.