FCPO broke its resistance at MYR3000/mt today and closed at 3005! Congratulations to all who bought in oil palm plantation counters!

For those who missed, don’t worry, here’s something to share with you so that you could spot the next bull cycle earlier in future. Knowing is loving, and the more we know, the higher confidence we have.

1. Like all commodities, crude palm oil (CPO) price is highly fluactuating based on the supply-demand equilibrium. However, CPO is a widely required raw material in various industries, from your 3 in 1 beverage to cosmetics, which all of us will use/consume everyday, so the demand is relatively stable.

2. There’s only two major exporters of CPO in the world, Indonesia and Malaysia. Both countries supply nearly 80% of the global CPO demand.

3. In edible oil market, the biggest rival of CPO is soy bean oil. Soy bean oil is mainly produced in the US. As our climate becomes more and more extreme, production of both soy bean and palm seeds are also easily affected by extreme weather. Once there is a significant reduction in production... jeng jeng jeng, price will go up just as the usual logic of less supply higher price!

4. Both the Malaysian and Indonesian goverments are highly sensitive on the stock pile of CPO, as it is a huge revenue to both countries. Once there is over supply, there will be some initiatives to bring stockpile to a healthy level. Hence, goverment has vested interest and commitment towards controlling the supply.

5. Boycott calls on palm oil from the EU and US are no news! There is nothing much to be afraid off. It happens all the time but look, they are still consuming all sorts of products that need to use palm oil as one of the raw materials. Business is business, when edible oils are in low supply status, these hypocrites will shut their big mouths and be completely silent about boycotts, because no edible oil means no production in the factory, which leads to no income to the companies! Hence, they have to resort to palm oil no matter what and forget about the boycott first.

6. The higher the CPO price goes, the more lucrative it is to plantation counters! The average CPO production cost is said to be around MYR2200/mt. Hence, companies with bigger scale of economy can enjoy a lower cost that the above mentioned figure. It is generally perceived that plantation companies are at high risk of loss when CPO price hovers around MYR2200/mt or lower.

7. Lastly, to all fundamentalists, a gentle but VERY IMPORTANT reminder: DO NOT BUY PLANTATION COUNTERS AT A LOW PE RATIO! Reason being, the low PE will only appear at the peak of CPO price, which means you are buying at the peak of the growth cycle of the company. Once the bull run ends, CPO price continues to drop gradually, the low PE will turn higher and higher until it becomes negative once the company starts to make losses.

So, IT IS LOGICAL TO BUY AT UNHEALTHY PE RATIO! Your chance of making money will be significantly higher.

Happy investing!

Written by
Rich Son Poor Son
27/12/2019

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