• Bloomberg reported that China will suspend tariff hikes on soybeans, pork and other farm goods from the USA as a reconciliatory gesture before the trade talks with the USA in October. Currently, China has an import tariff of 25% on US farm goods. The tariff was supposed to increase by five to 10 percentage points in September. In a related development, there has been rising interest on US soybeans from Chinese buyers. They are looking to buy US soybeans for delivery in October or November 2019. A few weeks ago, China bought 460,000 tonnes or eight cargoes of US soybeans.
• Bloomberg also reported that Indonesia has raised the allocation of palm biodiesel for 2019E because of high demand from motorists. The Energy and Mineral Resources Minister has raised biodiesel purchase quotas to 6.6mil KL (5.7mil tonnes) from 6.2mil KL (5.4mil tonnes). Pertamina said that domestic consumption of biodiesel was 3.2mil KL (2.8mil tonnes) in 7M2019.

• Reuters reported that US President Donald Trump has tentatively approved a plan to increase the amount of biofuels that oil refiners are required to blend each year to compensate for exemptions handed out to the smaller refiners. The plan is intended to appease farmers’ anger in the US Midwest but could upset the oil industry. Under the plan, the US Environmental Protection Agency will calculate a three-year rolling average of biofuels exempted from the mandates and add that figure to the annual biofuel blending quotas.

• South China Morning Post reported that China’s corn industry has been hit by the African swine fever as the demand for hog feed meal has dropped. Corn accounted for 40% of China’s overall grain production in 2018. According to an industry player, the African swine fever could cut the demand for hog feedmeal by 5% in 2019E, which would wipe out at least 23mil tonnes of corn consumption. This is almost 10% of domestic corn production. Another industry player said that China may lose almost 50% to 60% of its pigs due to the African swine fever disease.

• Reuters reported that companies operating in the sugar and ethanol sectors in Brazil are investing to expand production capacity to produce biofuel due to strong local demand. According to an industry expert, this could drive the production mix next season to an even smaller share for sugar.

• Sugar mills in Brazil are flexible in respect of the amount of sugar cane that are allocated for the production of raw sugar and ethanol production. Last year, sugar mills in Brazil allocated only 35% of the sugar cane to produce raw sugar. In our view, global raw sugar prices may rise if there is a drop in sugar production in Brazil. This might squeeze the operating profit margin of sugar refiners such as MSM Malaysia.

Source: AmInvest Research - 23 Sept 2019