Regional Plantations - Maybank Kim Eng 2019-06-12: Weather Aid From The USA

FIRST RESOURCES LIMITED (SGX:EB5) BUMITAMA AGRI LTD. (SGX:P8Z)

Regional Plantations - Weather Aid From The USA

The delay in corn and soybean plantings due to excessive rainfall and flood in the USA is seen as price friendly as late planting has the potential to drag yields. Beyond this, the market will focus on weather patterns and field progress for new price discovery.
Our 12M NEUTRAL view on the sector is unchanged, although long funds should consider taking the opportunity to accumulate bombed out small-mid caps during this down-cycle.
Our BUYs are FIRST RESOURCES LIMITED (SGX:EB5), BUMITAMA AGRI LTD. (SGX:P8Z), Ta Ann and Sarawak Oil Palms.

Following last month’s excessive rain and flood in the USA, the USDA (United States Department of Agriculture) revised down its initial projection of corn estimates for 2019/20F by 9% or 1.4b bushels to 13.7b, which if realized would be the lowest since 2015/16.
It cuts corn yield per acre projection by 10 bushels to 166 bushels (previously 176 bushels; last year: 176.4 bushels), and also cut area planted to 90.8m acres from 92.8m acres. This follows unprecedented planting delays as corn planting was only 83% completed as at 9 June (2 June: 67%, and 5-yr average: 99%), even as growers took advantage of the drier conditions last week to accelerate planting.
As for crop conditions, in its first report of the year, USDA rated 59% of corn crop as good-to-excellent (as at 9 June), ahead of market expectations of 54% but is well behind last year’s crop rating of 77%. Corn price rose nearly 3% following the crop progress report releases.

Meanwhile, USDA has kept its initial 2019/20F projection of soybean estimates at 4,150m bushels on unchanged planted area of 84.6m acres. Its yield per acre forecast was also unchanged at 49.5 bushels (last year: 51.6 bushels).
We believe there is downside risk to this projection if US farmers fail to aggressively plant soybean in this week or next.
Similar to corn, soybean planting progress is also behind schedule with only 60% of intended area planted as at 9 June (compared to 39% last week, and 5-yr average of 88%). As for soybean crop conditions, we believe USDA will make its first report in 1-2 weeks given the delayed planting.

The window of opportunity for planting corn and soybean is nearly over. If weather remains non-conducive over this week and next, farmers may choose to abandon the remaining plan or opt for prevented plant insurance. Late planting also typically means yield will likely be smaller than usual. Lower yield will be soybean price friendly and will likely have a positive drag on CPO price too.
On 28 June, the USDA will release its annual Acreage report which will provide survey-based indications of “final” planted and harvested area. Beyond that, the market will focus on weather patterns and field progress for new price discovery.
Soybean’s harvesting in the USA is between September and November.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-12

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