Regional Plantations - Maybank Kim Eng 2020-07-01: USDA Acreage Report Offers No Major Surprises

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Regional Plantations - USDA Acreage Report Offers No Major Surprises

US planting progress of soybean and corn have largely normalized in 2020. Recall that 2019’s wet weather prevented some planting. However, as 2020’s actual planting lagged market estimates, corn and soybean prices jumped ~2-4% DoD upon release of USDA’s Acreage Report yesterday. Soybean oil price posted a smaller price increase (+1% DoD).
We make no changes to our NEUTRAL sector call.
Values can be found among the SMID caps, which trade at or near GFC trough PBV (see our sector report: Regional Plantations - Maybank Kim Eng 2020-05-13: Stockpiles At 5-Month High).
Preferred BUYs are First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), Sarawak Oil Palms, Ta Ann and Boustead Plantation. SELL Genting Plantations and IOI Corp given their rich valuations.

The USDA (United States Department of Agriculture) published its 2020 Acreage report based on a survey of approximately 70,900 farm operators. US farmers have planted 83.8m acres (+10.1% y-o-y) of soybean, 0.4% higher than planting intentions published back in Mar 2020, but below street estimates of 84.8m acres. With relatively good weather, planting has progressed well this year with 96% of the soybeans planted, 89% were emerged, and 70% of the acres were reported in good to excellent as at 21 June. US farmers have planted 94% of soybean acreage with herbicide resistant seed varieties in 2020, similar to 2019.
As for corn, planted acreage was up 2.6% y-o-y to 92.0m acres but 5.2% below planting intentions published back in Mar 2020 and also below street estimates of 95.1m acres. By 7 June, farmers had planted 97% of corn acreage, 19-ppts ahead of last year and 3-ppts ahead of 5-year average. 95% of corn had emerged by 14 June, 21-ppts ahead of 2019 and 3-ppts ahead of 5-year average. As of 21 June, 72% of corn acreage was rated in good to excellent condition (+16-ppts y-o-y, +1-ppts q-o-q). US farmers have planted 92% of corn acreage with biotechnology seed varieties in 2020, unchanged from last year.

The USDA also released domestic stockpile for soybean (as of 1 June 2020), estimated at 1.386b bushels (-22.3% y-o-y) which was broadly within street estimates. As for corn, the domestic stockpile as of 1 June was estimated at 5.224b bushels (+0.4% y-o-y), above street estimates.

While 2020’s planting has progressed relatively well, weather development over the next 3 months (till harvesting) are equally important. Thus far, the weather has been friendly. While 2020’s planting and expected output will be significantly higher than a year ago, this was already largely priced in by the market. Therefore, any weather scare is expected to be price friendly towards soybean.
Following the USDA Acreage report release, the US soybean (+2.4%) and soybean oil (+1.2%) prices closed slightly higher DoD on 30 June, while corn jumped +3.9% DoD. We make no changes to our 2020’s CPO ASP forecast of MYR2,300/t.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-07-01

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