• The USDA (US Department of Agriculture) released its monthly demand and supply projections for vegetable oils last week.

• The USDA has maintained most of its demand and supply forecasts. US soybean inventory is expected to climb by 19.3% to 315mil bushels in 2023/2024F from 264mil bushels in 2022/2023 mainly due to a 13.7% drop in exports.

• We believe that China is buying more soybeans from Brazil instead of the US. US soybean production is estimated to decline by 2.5% in 2023/2024F as planted areas shrink to 83.6mil acres from 87.5mil acres in the previous year.

• Global soybean production, however, is forecast to expand by 11.9% to 114.3mil tonnes in 2023/2024F from 102.2mil tonnes in 2022/2023, underpinned by higher production from Argentina. Although the USDA has tweaked its estimate of Brazil’s soybean output downwards, this is anticipated to be compensated by strong production in Argentina.

• Soybean production in Argentina is envisaged to double to 50mil tonnes in 2023/2024F from 25mil tonnes in 2022/2023 in the absence of drought. Brazil’s soybean output is estimated at 155mil tonnes in 2023/2024F vs. 162mil tonnes in 2022/2023.

• Due to the rise in the global production of soybean and soybean oil, we believe that their prices would remain low. This is expected to limit stronger upside to CPO prices.

• In contrast to falling soybean, corn and wheat prices, CPO prices have been going up recently on the back of falling production in Malaysia and Indonesia. We reckon that palm production would remain soft until the end of the Hari Raya festivities in April. We think that CPO production would start rising again in May.

• Based on the latest prices, we estimate the discount between US soybean oil and CPO to be 11.2% or US$113/tonne vs. the 5-year average of 22.3%. The appreciation of MYR against USD in recent days has contributed to the narrowing of the price discount.

• We are Neutral on the plantation sector. Our average CPO price assumptions are RM4,000/tonne for pure Malaysian planters and RM3,700/tonne for those with Indonesian operations. We have BUYs on KL Kepong (Fair value: RM25.20/share), Hap Seng Plantations (Fair value: RM2.30/share) and Genting Plantations (Fair value: RM6.80/share).

Source: AmInvest Research - 11 Mar 2024