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MP Evans, noting El Nino threat, backs palm oil price revival

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MP Evans sounded an upbeat note on prospects for palm oil producers even as it highlighted the dent to its profits from the slump in prices of the vegetable oil.

The cattle and plantations group, which on Tuesday unveiled the $20m sale of an Australian ranch to China's Fucheng Group, acknowledged the dent to its profits from a drop in palm oil prices, which in Rotterdam fell below $500 a tonne last month for the first time since December 2008.

MP Evans - unveiling profits from plantations down 48% to $8.85m in the first half of 2015, a drop spurred by a 25% drop in its crude palm oil selling price – attributed the market decline to factors including "plentiful supplies" of rival vegetable oil soyoil, following strong soy harvests in the US and South America.

Market jitters over economic growth in China, a large buyer of commodities including palm oil, were also seen as fuelling the price drop, as was the impact of weak oil prices in undermining output of biodiesel, made largely from palm oil.

Citing consultancy Oil World, Mr Evans said that "biodiesel production has been at low levels resulting in higher exports of palm oil by Indonesia", the top producer and exporter of the vegetable oil.

"As these quantities have not been immediately consumed, some therefore have been added to existing stocks in the importing countries, and this has contributed to the price weakness."

'Acute dry period'

Nonetheless, the group said it was "confident" in the "encouraging" long-term fundamentals for palm oil, which is widely used in foods and cosmetics, besides making biofuels.

"Vegetable oil is a basic foodstuff and increasing demand from a growing world population looks likely to continue.

"Palm oil delivers by far the highest yield per hectare of all the vegetable oils, and has the lowest cost of production. It is therefore well placed, long term, to benefit from the likely future increase in demand."

Furthermore, the group highlighted the potential for the El Nino weather pattern - which Australian meteorologists said on Tuesday they expect to last into 2016 – to undermine output both next year and in 2017, and "impact beneficially" on palm oil prices.

El Ninos have a history of causing undue dryness in South East Asia, responsible for the vast majority of world palm oil production, and undermining significantly output of the vegetable oil.

MP Evans said that its own Kalimantan plantation on Indonesian Borneo was "experiencing an acute dry period".

'Bottom in the market?'

The comments are the latest in a series to caution over the prospect of weaker output ahead, with the haze over parts of South East Asia resulting from slash and burn forest clearance seen depressing oil palm productivity too.

Franky Oesman Widjaja - vice-chairman of agribusiness and food at the Indonesian Chamber of Commerce and Industry, and head of plantations group Golden Agri Resources - earlier this month warned that domestic output "can plunge between 20-30% next year because of effects from El Nino, as well as the haze crisis".

Already, palm oil prices have staged a recovery, bouncing more than 15% on the Kuala Lumpur futures exchange from an August 25 low.

In Rotterdam, a recovery of more than 10% in pries of the past three weeks "may point to a bottom in the market already having been reached", broker VSA Capital said on Wednesday.

"Whether or not this is the case, we remain bullish on crude palm oil pricing for 2016 due to the delayed yield impact of El Niño on palm oil production in South East Asia."

Cattle boost

MP Evans reported group earnings for the first half of 2015 flat at $15.3m, despite a 17.4% drop to $39.2m in revenues, with the downturn in palm oil offset by improved profitability at the Australian cattle operations.

Prices of Australian cattle set a record high of 591.25 Australian dollar cents per pound on Tuesday, up more than 60% year on year, a jump the group attributed to "an increase in both domestic and export demand, aided by the continued weakening of the Australian dollar.

"Cattle prices in Australia have continued to surge, following continued strong export demand, the relatively weak Australian dollar and a continuing decline in the size of the Australian and US cattle herds."

However, the group forecast that, without more elevated palm oil prices, its full-year results would fall short of those for 2014.


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