-  Reuters reported that the US Environmental Protection Agency (EPA) has proposed a deep cut in the amount of ethanol that must be blended into gasoline next year.

-  The volume of corn-based ethanol will be reduced by 800 million gallons to about 13 billion gallons. The law had required 14.4 billion of gallons for 2014F.

-  The reduction in ethanol blending was partly driven by protests by independent oil refiners who said that they cannot sell gasoline with a higher blend of ethanol.

-  The proposal by EPA is not final yet as it has to be approved by the White House Office of Management and Budget.

-  This development is not positive for the biofuels and corn industries. The reduction in ethanol blending could result in excess supplies of corn.

-  According to the latest USDA (US Department of Agriculture) report, about 33.8% of corn is expected to be used to produce ethanol in US in 2013F/2014F.

-  We are unsure if the proposed reduction in ethanol blending would also result in lower blending of soybean oil in biodiesel.

-  USDA statistics revealed that roughly 20.3% of soybean oil was used in the US biodiesel industry in 2012/2013F.

-  Up to last Thursday, soybean prices were relatively flat as improved weather conditions are expected to aid harvesting in US and planting in South America. The price discount between soybean oil and CPO is currently 17.0% or US$153/tonne.

-  Finally, independent cargo surveyors reported that palm oil shipments from Malaysia climbed between 17.2% and 22.5% in the first ten days of October compared with the same period in September.

-  The improvement in exports was due to higher shipments heading to China, India and Pakistan. China received 27.7% more palm oil while shipments to India expanded by 30.6% underpinned by the upcoming Deepavali festival.

-  We have a NEUTRAL stance on the plantation sector currently. Our top pick in the sector is Genting Plantations. 

Source: AmeSecurities