• Bloomberg cited a government official as saying that Indonesia’s Estate Crop Fund for Palm Oil paid 3.57 trillion rupiah (US$245mil) as incentives for 1.6mil kiloliters (1.39mil tonnes) of biodiesel in 1H2018. The subsidised biodiesel was used in the transportation and power plant industries. In another development, a government minister said that Indonesia can save as much as US$5.5bil annually by lowering its crude oil imports and using locally produced palm biodiesel.

• The Indonesia government wants its biodiesel blending mandate to be implemented beyond the transportation sector within two to three months. We think that this is a tall order as it would take time for the Indonesia government to come up with a decree that mandates various industries to use biodiesel. Recall that the mining and railway industries in Indonesia have not used B20 yet as the government did not announce the decree on the biodiesel subsidies for those industries.

• Bloomberg quoted COFCO as saying that soybean inventory in Brazil may fall on China’s demand. An official with COFCO said that ending stocks of five to six million tonnes may vanish completely as China boosts imports after shunning US soybeans. Also, China may absorb any increase in Brazil’s soybean production in 2018F/2019F. Even then, China may still have to buy soybeans from the USA as Brazil’s soybeans are not enough to satisfy China’s requirements. COFCO plans to trade about 9.5mil tonnes of Brazilian soybeans in 2018F/2019F vs. 8.5mil to 9mil tonnes in 2017/2018F.

• Reuters cited an industry player as saying that Brazil’s soybean planted areas could grow by 3% to 5% in 2018F/2019F depending on how the country fares in the trade war between the USA and China. This means that 37mil hectares could be planted with soybeans in Brazil in 2018F/2019F compared with 35.15mil hectares estimated in 2017/2018F. Although US soybean prices have plunged, the premiums for Brazil’s soybeans have compensated for the decline in prices. This helped ensure decent profits for the farmers.

• Reuters reported that an agricultural processor in Shandong, China has filed for bankruptcy due to weakening market conditions. Shandong Sunrise Group filed for bankruptcy a few weeks ago after failing to repay its debts. Shandong’s financial problems were due to falling demand for animal feed after pig farmers in China began culling their herds because of declining meat prices. According to an industry expert, soybean crushers in Shandong are losing almost 50 yuan per tonne currently.

• SGS said that Malaysia’s palm shipments inched up by 5.6% in the first 25 days of July compared with the same period in June. Palm exports to India rose by 8.6% while palm shipments to the EU surged by 23.6%. These helped compensate for a 27.1% fall in shipments to China.

Source: AmInvest Research - 30 Jul 2018