Maybank is of the opinion that 2024 CPO price trend will broadly track the trend in 2023. However, it added Malaysian planters’ earnings in 2024 will likely be better YoY owing to lower unit costs on lower fertilizer expenses and higher productivity. The market is monitoring the ongoing El Nino that has delayed soybean planting in Brazil. A crop failure may lead to a spike in CPO price. At the same time, the market is fearful of a global recession that may drag CPO price lower.
M&A will remain robust in 2024. Preferred BUYs: GENP, FR & BAL. 2023/24: Tighter veg oils SUR, but ample oilseeds USDA, in its Nov 2023 issue, forecasts the stock-to-usage ratio (SUR) of CPO to dip to 20.5% for 2023/24F (2022/23F: 22.8%; below its 5-yr historical average of 21.7%) as incremental consumption will outpace incremental output. In turn, this will lead to lower SUR for 9 vegetable oils at 13.9% for 2023/24F (2022/23F: 14.6%); below its 5-yr average of 14.2%.
While USDA forecasts vegetable oils supplies to be relatively tighter at the end of 2023/24F, the global 7 oilseeds’ SUR is nevertheless projected to be relatively ample at 20.4% (2022/23F: 19.0%), higher than its 5-yr average of 19.8% (Fig 3). The forecasted data is premised on record oilseeds production in 2023/24F. Bear in mind that these oilseeds could be crushed to ease the projected tightness in vegetable oils. CPO price to average MYR3,700/t in 2024E
The house maintains its CPO ASP forecast of MYR3,700/t for 2024E, which is below 2023’s MYR3,830/t, premised on good South American soybean harvest, and anticipated lower YoY unit cost. In terms of price trend, CPO price is expected to be off to a good start in 1Q24 owing to the seasonally low output cycle, and trend lower by mid-2024 on anticipation of seasonally better output in 2H24.
Key things to watch out in 2024
(a) Weather development. There is still much uncertainty over the anticipated record oilseeds output in 2023/24F as the ongoing El Nino is only projected to end sometime in early-2024. If unfavourable weather conditions persist in Brazil over the next two months, it could send soybean prices higher, which should benefit CPO price indirectly too.
(b) Recessionary fears linger. The effects of high US interest rates, the wars in Russia-Ukraine and Israel-Hamas, and the financial health of many countries pose much uncertainties to global demand. Weakerthan-expected demand would lead to higher-than-expected stockpile, dragging down CPO price.
(c) Tax review. The Malaysian Government is conducting a comprehensive study on taxes in the palm oil sector and hopes to
complete the study sometime in 2024. Among others, planters are asking for a review of the plantation sector’s windfall profit levy. At present, a levy of 3% is chargeable (on per tonne of FFB) on CPO prices above the MYR3,000/t threshold in Peninsular Malaysia and above the MYR3,500/t threshold in East Malaysia.
