Trading opportunity in Q1; NEUTRAL for 2024
3M FCPO price has risen 3.3% YTD, and briefly tested MYR4,000/t recently.
Maybank Research Pte Ltd in the Regional Plantation note today (Feb 1) said they expect Crude Palm Oil price to trend higher in Feb given present low output cycle, lack of competing oils till Q2, and an expected Ramadhan demand boost. Thereafter, the research house expects the CPO price to trend lower until mid-year as supplies improve.
Maybank Research BUYs are FR, BAL, SOP, and TAH.
2023/24: Ample oilseeds, but tighter veg oils
USDA, in its Jan 2024 issue, forecasts the 7 major oilseeds production for the marketing year 2023/24F to be at 660.2mt, a marginal change from its 661.5mt forecast made in Nov 2023.
The 7 major oilseeds’ 4% YoY growth in 2023/24F will be led by soybean. While USDA has revised down Brazil’s soybean prospects due to El Nino, it raised Argentina’s forecast.
Overall, the market is anticipating a bigger crop from South America this season largely due to a rebound in Argentina’s crop as last year’s crop was decimated by La Nina.
Meanwhile, the 7 major oilseeds’ stock-to-usage ratio (SUR) is projected to be unchanged and remains relatively ample at 20.4% (2022/23F: 19.3%) relative to its historical 5-yr avg. of 19.9% .
As for the 9 major vegetable oils, USDA maintains its forecasts at 223.0mt (+2.7% YoY; Figs.2,4) with a projected SUR of 13.9% for 2023/24F (2022/ 23F: 14.7%).
The SUR is relatively tight compared to its 5-yr avg. of 14.5%.
Still, the ample oilseeds could eventually be crushed to ease the projected tightness in vegetable oils. However, it is worth noting that the present soybean crushing margins in China and USA are poor.
CPO price to average MYR3,700/t in 2024E
Maybank Research maintains our CPO ASP forecast of MYR3,700/t for 2024E, which is below 2023’s MYR3,810/t, premised on (i) good South American soybean harvest, and (ii) anticipated lower YoY CPO unit cost. CPO price was off to a good start in the month of Jan (YTD: +3.3%).
Historically, the month of Feb is a good month for CPO price, having chalked up positive MoM returns 70% of the time in the past 20 years (Figs.9,10).
Thereafter, CPO price has entered into correction phase 70% of the time in the month of March over the past 20 years. L
Likewise, Maybank Research believes the positive uptrend in 3M FCPO price would sustain in Feb 2024 owing to low output and inventory drawdown as demand will likely remain supported ahead of Ramadhan.
Nonetheless, CPO price upside will be capped by its competing oils and gasoil. Price discounts have narrowed of late.
Having said that, Maybank Research posit CPO price may still briefly go above MYR4,200/t in Feb/Mar.
Thereafter, CPO price should trend lower by mid-2024 due to availability of new South American harvests, and anticipation of CPO output recovery in 2H24.
Unit cost of output is key to long term pricing
By Maybank Research’s estimate, MY planters’ unit cost has jumped by 45% to an average of MYR2,670/t for the period of FY22-23 compared to FY17-21’s 5-year average unit cost of MYR1,843/t.
Maybank Research posits that the sustainable long term CPO price will always be referenced against producers’ unit cost of production. That said, the research house expects MY planters’ unit cost to ease somewhat in FY24 (relative to FY23) on lower fertilizer cost and improving yields.
