Plantation Sector - Hot and dry weather in the US affecting production OVERWEIGHT

- USDA (US Department of Agriculture) released its planting estimates and crop inventory report last Friday. 

- In summary, the report showed a steep fall in corn inventory as the hot and dry weather U.S had affected production. As such, supply for corn is expected to be tight. 

- The report by USDA was more bullish for corn compared to soybean. Despite this, soybean prices rose last Friday, following the upward trend in corn prices. 

- As a result of the USDA report, price of corn for July delivery rose 20 ½ cents to US$6.72 1/2/bushel while July soybean price climbed 46 ¾ cents to US$15.12 3/4/bushel. July soybean oil price improved 1.29 cents to US$0.5221/pound. 

- Based on the latest prices, the discount between soybean oil and CPO is now 18% compared to the five-year average of 16%. 

- According to the report, corn inventory in U.S as at 1 June 2012 fell 14.2% to 3.149bil bushels from 3.67bil bushels as at 1 June 2011. 

- Corn acreage increased marginally from USDA’s previous estimate of 95.9mil acres for 2012F to 96.4mil acres. 

- Soybean inventory in U.S. rose 7.8% from 0.62bil bushels as at 1 June 2011 to 0.67bil bushels as at 1 June 2012.  

- Planted acreage for soybean climbed 2.9% from USDA’s previous estimate of 73.9mil acres to 76.1mil acres. 

- In Malaysia, palm oil production is entering the peak season in 3Q2012. However this year, Hari Raya Puasa is being celebrated earlier. 

- This coupled with the Mooncake Festival in September is expected to help absorb the increase in palm oil supply.  

- According to Intertek, an independent cargo surveyor, palm oil exports from Malaysia improved 4.9% MoM in June 2012. 

- We are maintaining our OVERWEIGHT stance on the plantation sector. We believe that CPO prices have bottomed and should recover on the back of tight supply of vegetable oils.  

Source: AmeSecurities