Maybank IB Research maintains Neutral on plantations

KUALA LUMPUR: Maybank Investment Bank Research
is maintaining its Neutral view on the plantations sector over the next
12 months and retained its average crude palm oil (CPO) average selling
price forecasts of RM3,150 for 2012 (first half of 2012: RM3,200), and
RM3,000 (2013-14).
In its sector outlook on Wednesday, it has Buy recommendations on stocks with high production growth including Sarawak Oil Palms and Ta Ann while Singapore-listed Wilmar remained a Sell.
Maybank
Research said the 23% rally in third-month soybean prices since early
June was driven by the worst drought in the US since 1988. However,
soyoil prices (+8%) have lagged, and so have prices of palm (unchanged)
and rapeseed (+2%) oil.
"While soyoil price has further upside
should soybean crop prospects worsen, palm oil's discount to soyoil is
likely to stay high given that upcoming high production months for palm
oil," it said.
On Tuesday, the US Department of Agriculture
reported that US soybean crop conditions had worsened for the seventh
consecutive week. Crop conditions for soybeans have declined to the
lowest since 1988.
The report stated 31% of planted area
nationwide in the US was rated "good or excellent" (against 65% at the
start of the season and 62% a year ago), and 35% is rated "poor or very
poor" (against 6% at the start of the season and 11% a year ago).
Maybank
Research said this was reflected in the 23% rally in third-month
soybean prices since early June to an unprecedented high of US$15.82
per bushel. Soy meal prices jumped 30% and soyoil rose 8%.
The
research house said if US crop conditions worsen in the coming two to
three weeks, there would be further upside to soyoil, which may lift
CPO price as well.
On the outlook for CPO, it said palm oil was entering seasonally high production months, which would ensure ample supply.
As
for recent changes in India's import taxes on refined palm oil, it
expected these factors to likely to disrupt trade flow in the short
term.
Maybank Research also noted that soybean prices at
unprecedented highs would encourage farmers in South America to plan
even bigger soybean planting areas in 4Q12, which should see soybean
prices ease by then.
"The missing elements for a convincing CPO
price rally are the absence of a rally in crude oil prices (in the 2008
commodity price rally, Brent crude prices hit a peak of US$143 per
barrel versus US$103 on July 23), and the return of a strong El Nio.
The
research house retained its average CPO average selling price forecasts
of RM3,150 for 2012 (first half of 2012: RM3,200), and RM3,000
(2013-14).
"We maintain our Neutral sector weighting on a 12M
view, with key risks to our view being: (i) a worsening eurozone crisis
impacting the global economy (negative for CPO prices) and (ii)
monetary easing in the eurozone and/or the US (positive for prices),"
it said.