KUALA LUMPUR: The bearish near-term soybean price sentiment is likely to cause a knee-jerk negative impact on crude palm oil (CPO) price given the tight supply and demand balance for vegetable oil.
According to the United States Department of Agriculture 2022 planting report, US farmers intend to plant 91 million acres of soyabean and 89.5 million acres of corn, possibly due to skyrocketing fertiliser prices.
While the report does not translate to actual acreage, Hong Leong Investment Bank (HLIB) Research said the latest report is bearish on near-term soybean price, as it eases concerns on soybean supply.
“The bearish near-term soybean price sentiment will also have a spill over effect on near term CPO price, given the tight supply-demand balance for vegetable oil,” it added.
Should the intended planting acreage turns into reality, this would be the third time in history soybean acreage intentions eclipsed corn.
HLIB Research is maintaining its CPO price projections of RM4,300, RM3,300 and RM3,000 per tonne for 2022, 2023 and 2024.
“While we believe CPO prices will likely surpass our 2022-2024 CPO price projections of RM4,300, 3,300, 3,300 per tonne, we make no changes on our CPO price projections for now, given the fluid situation,” it said.
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Year-to-date, CPO price averaged at RM6,160 per tonne, which is significantly higher than its projected CPO price of RM4,300 per tonne for 2022.
Based on HLIB’s estimates, every RM100 per tonne raise in its CPO price projection would lift earnings forecasts for plantation stocks under its coverage by 3.5% to 15%.
As such, the research house is keeping a “overweight” stance on the plantation sector due to easing environment, social and governance concerns, decent valuations as well as high near-term CPO prices which would translate to good near-term earnings prospects.