CPO

CPO: UOBKH has CPO Report. Note that Production rose MoM in Feb despite the shorter mth due to the spillover effect from Jan. Harvesting and fruits evacuation were delayed in Jan due to heavy rain and flooding, especially in the two key producing states - Sabah (31% of Malaysia’s production) and Johor (17%)….

Add that Production yield started to recover but has yet to be back to its full potential. Oil extraction rate remained low at an estimate 19-20% due to the heavy rainfall. Demand from price-sensitive segments starting to slow down. Exports in Feb 11 fell YoY and MoM, especially from price-sensitive countries, such as Pakistan, and from the energy sector (exports to the EU also declined)....

Higher production and lower exports led to higher palm oil inventory in February, adding 60,130 tonnes mom to 1.48mt…..

House expect CPO prices to peak in 1H11 and weaken in 2H11, this is likely to cap plantation stocks’ price performance. House is reviewing sector weighting with a potential downgrade from MARKET WEIGHT to UNDERWEIGHT. For investors who continue to like the sector and expect more upside, stick to mid-cap picks: First Resources (TP $1.83) and Sampoerna Agro (TP Rp3,800).
ben_oh :

Msia CPO futures dropped 3.5% yday to RM 3459/mt.

Goldman notes a bearish bias at the recently concluded annual CPO price outlook conference in Msia. Price forecasts ranged from RM 2250-4100/mt, but the average was closer to RM3100/ton. Most of the speakers expect prices to be lower in 2H11.
Highlights recent data also point to rising palm oil inventories and CPO production…

Msia Palm Oil Board (MPOB) reported that Msia’s Feb ’11 palm oil inventories increased 4.2% mom to 1.48 m tons, contrary to market expectations for a 2.6% decline. Meanwhile initial indications for exports in Mar were also weak at -17%.
Also, CPO production is seasonal and typically bottoms in February. This, coupled with normalization of weak yields for the past 2 yrs, suggests CPO pdtn may have hit bottom, and should continue improving sequential...

House remains Neutral on sector, believes CPO prices may have peaked. Believes stock selection is now key. Favors IndoAgri (Buy, TP $3.10) due to attractive valuations and strong organic growth potential.