Weather key to near-term price recovery for CPO

The weather developments from July to August are key to near-term fresh price recovery for crude palm oil (CPO) prices, says Maybank Investment Bank (Maybank IB) Research.

While the good-to-excellent conditions for soybean have deteriorated rapidly throughout June, ite said there is still potential for the situation to improve, as July and August are crucial pod-setting periods, which will determine the final soybean yields before harvesting starts from September to October.

The research house, in its latest report, said: “An above average rainfall is presently forecast by National Oceanic and Atmospheric Administration’s Climate Prediction Centre over the next 14 days in major crop producing regions.

“While the expectation is for an improvement in rainfall now, any further weather scare is only expected to be price friendly towards soybean and soybean oil (and in turn, CPO), more so since there is now smaller-than-expected planted soybean acreage.”

Hence, Maybank IB Research maintained its CPO average selling price forecast for 2023 at RM3,400 per tonne pending the weather development from July to August.

It said there was higher-than-expected corn acreage (2.4% above street estimates) and lower-than-expected soybean acreage (4.8% below street estimates), as published in the United States Department of Agriculture Acreage Report based on a survey of about 63,700 farm operators last week.

“US farmers have planted 83.5 million acres (down by 4.5% year-on-year (y-o-y) of soybean this season, but 4.6% lower than the planting intentions published back in March 2023 and 4.8%, below street estimates (of 87.7 million acres).

“US farmers also preferred corn (over soybean) over the past three months as corn’s planted acreage surprised on the upside expanding by 6.2% y-o-y to 94.1 million acres.

“Corn’s acreage was 2.4% above street estimates (of 91.85 million acres), and 2.3% above the planting intentions in March 2023,” Maybank IB Research said.

It has maintained a “neutral” rating on the plantation sector with Kuala Lumpur Kepong Bhd, First Resources Ltd and Bumitama Agri Ltd as its preferred buys, with target price of RM23.90, RM1.85 and 84 sen, respectively.

“The downside risks to our call include the reversal of Brent crude oil price to sharply below US$80 (RM373.8) per barrel, negative policies imposed by importing countries and unfriendly government policies at producing or exporting countries,”it said.

Tags: Crude palm oil, yields, CPO, soybean oil, price, weather, rainfall, soybeans