• Bloomberg reported that China is planning to overhaul its state agriculture companies, transferring the trading assets of stockpiler, Sinograin to COFCO. The restructuring will be implemented in stages and would include COFCO taking over oilseed crushing capacity from Sinograin. This would make COFCO the largest soybean crusher in China and allow the group to compete with the likes of Cargill and Archer Danields Midland. COFCO plans to trade 30mil tonnes of corn and process 20mil tonnes of soybean by 2020F according to a five-year plan proposed in 2016.

• The Guardian reported that Selfridges has become the first retailer in the UK to make its own brand food products completely free of palm oil. This is nine months ahead of its target. Selfridges is poised to announce that nearly 300 of its products in the food halls including chocolates and biscuits are free of palm oil for Christmas this year. We believe that this is negative as other retailers in the EU may follow suit. The food industry accounts for almost 30% of palm oil usage in the EU in 2018.

• Bloomberg quoted RSPO Indonesia as saying that the size of Indonesia’s sustainable palm oil is about 13mil tonnes currently. This is approximately a third of Indonesia’s CPO production of 43mil to 47mil tonnes for 2019F. Roughly 3.72mil hectares of oil palm estates in Indonesia were certified by the RSPO in 2018. The EU remains the world’s biggest market for sustainable palm oil. An official with Golden Agri Resources said that Indonesia needs to seek markets beyond the EU as there is risk that the ban on palm biodiesel may extend into food.

• Bloomberg also said that Brazil is expected to overtake the US as the world’s largest producer of soybean this year. We believe that Brazil has already overtaken the US as China’s largest source of soybean. According to the USDA, Brazil’s soybean production is estimated to be 123mil tonnes this year, which will account for 34.6% of global output. The US is expected to produce about 112.95mil tonnes of soybeans this year, which is 31.8% of global production.

• The USDA has released its forecasts for 2019F/2020F for the first time. The USDA estimates US soybean inventory to drop by 2.5% to 970mil bushels in 2019F/2020F from 995mil bushels in 2018/2019F. This is due to an 8.7% decline in soybean production resulting from lower yield and planted areas. US soybean yield is projected to ease to 49.5 bushels per acre in 2019F/2020F from 51.6 bushels per acre in 2018/2019F. Planted areas of soybean in the US are forecast to fall to 83.8mil acres in 2019F/2020F from 88.1mil acres in 2018/2019F.

• In spite of lower soybean inventory in the US, global soybean stockpiles are estimated to be relatively unchanged at 113.09mil tonnes in 2019F/2020F vs. 113.18mil tonnes in 2018/2019F. This is due to a 6.5% rise in soybean inventory in Brazil from 26mil tonnes in 2018/2019F to 27.7mil tonnes in 2019F/2020F. Soybean production in Brazil is forecast to rise by 5.1% to 123mil tonnes in 2019F/2020F from 117mil tonnes in 2018/2019F.

Source: AmInvest Research - 21 May 2019