Regional Plantations - Maybank Kim Eng 2020-04-02: Corn Is Still US Farmers’ Preferred Crop For 2020

Regional Plantations - Maybank Kim Eng Research | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5) BUMITAMA AGRI LTD. (SGX:P8Z)

Regional Plantations - Corn Is Still US Farmers’ Preferred Crop For 2020

Intentions were broadly within market estimates

  • USDA Prospective Plantings report released on 31 March provided a glimpse of US farmers’ intention of planting more soybean and corn in 2020 compared to a year ago, but was broadly within market expectations. Eventually, a higher-than-expected actual soybean planted area in 2020 will be negative for overall edible oil prices, including CPO, and vice versa.
  • Nonetheless, much uncertainty remains as this survey was conducted during the first two weeks of March before COVID-19 cases in the USA spiked up.
  • Our 12M NEUTRAL sector view is unchanged but values can be found among the SMID caps, which trade at or near GFC trough PBV (see Regional Plantations - Maybank Kim Eng 2020-03-11: Value Re-emerging In Small/Mid Caps).
  • Our preferred BUYs are KLK, First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z) and SOP. SELL GENP.

Higher planting intent in 2020 after 2019’s low base

  • According to USDA’s Prospective Plantings report (based on surveys conducted of ~80,000 farmers), US farmers intend to plant 83.5m acres of soybeans in 2020, lower than market average estimates of 85m acres. If fulfilled, it will be 10% higher than 2019. Recall that in 2019, the devastating flood in Midwest prevented many US farmers from planting in addition to the adverse impacts from retaliatory tariffs from China.
  • As for corn, US farmers also intend to plant higher corn acreage at 97.0m acres (+8% y-o-y), which came in higher than the market average estimates of 94.3m acres. If fulfilled, corn planted acres will be the highest since 2012.
  • Between soybean and corn, corn is still US farmers’ preferred crop for 2020 with 16% higher estimated planted acreage.

Stockpile broadly within market expectations

  • Separately, USDA also published its stockpile report yesterday. As at 1 Mar 2020, USDA soybean stored a total 2.25b bushels (-17% y-o-y) vs trade’s expectations of 2.24b.
  • As for US corn, stocks were 7.95b bushels (-8% y-o-y) vs trade’s expectation of 8.12b. The combination of data above led to soybean price being relatively unchanged DoD on 31 March at USD8.86/bu while soybean oil was marginal higher (+0.5% DoD) at USD0.2701/lb. Meanwhile, corn price was also relatively unchanged DoD at USD3.40/bu.

COVID-19 and weather have the final say

  • The US farmers will typically start planting corn in April, followed by soybean in May. Things are fluid for now given the COVID-19 development in the USA. Over the next 2 months, COVID-19 and weather developments in the USA bear monitoring.
  • The next crucial report to watch will be USDA’s 30 June Acreage report when the actual acreage planting for 2020 will be reported.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-04-02
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