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Shares in REA Holding tumble, after oil palm sowings miss target by a distance

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Shares in REA Holdings slumped by nearly 8% after the palm oil-to-quarrying group revealed it had missed, by a distance, its target for 2017 plantings that it had already reduced, blaming weather setbacks.


Shares in the London-listed group stood down 7.6% at 314p in lunchtime deals, taking them into negative territory for 2018, which they had begun with a rally, in line with the temporary jump in palm oil prices.


The stock price decline followed a trading statement in which the group reported that production of fresh palm fruit bunches, while 18% higher in the second half of 2017 than in the first six months, had in the October-to-December period been “more muted than had been envisaged”.


The group blamed delays to infrastructure repairs, and rain disruptions to harvesting.


REA also reported that it had planted 1,161 hectares palm plantation at its CDM and PBJ sits in Indonesia – well below a target of 3,000 hectares.


Target missed


That 3,000-hectare target was itself downgraded in October from an initial 4,000-hectare figure, with REA at the time blaming wet weather and the need for completing work to protect the PBJ site from flooding.


The wet weather had continued to setback [plantings at PBJ “throughout 2017”, the group said on Wednesday.


“Extension planting, planned to occur predominantly in lower lying areas in the north west section, had to be postponed until consistently drier weather would permit bunding to control flooding to be completed.”


In CDM, an initial 1,000-hectare planting programme had been cancelled in favour of a revised development programme.


“Delays in the PBJ planting and the review of the CDM development programme meant that the previously announced target of completing 3,000 hectares in PBJ and CDM combined in 2017 was not achieved,” REA said.


‘Missed its planting target’


Broker VSA Capital said: “Once again, REA missed its annual planting target by a significant margin,” flagging too the shortfall in growth in fresh fruit bunch output.


“This is at the low end of what we have seen with many peers, as the region’s producers bounce back from the El Niño-impacted levels of 2016,” the broker said, although it added that “it is clear REA is now moving in the right direction.


“We are hopeful that REA can now build on its much stronger performance in the second half of 2017 this year and deliver a harvest, and financial performance, materially ahead that seen in the full year 2017.”


REA’s statement comes the day after peer MP Evans revealed an 8.8% rise to 434,500 tonnes in its fresh fruit bunch output for 2017, although thanks to extra crop bought in, total volumes soared 20% to 644,570 tonnes.


“Due to the young average age of its estates and its operational excellence MP Evans is experiencing considerable volume growth across the group,” VSA Capital said.


Palm oil price outlook


REA Holdings said, on prospects for palm oil prices, flagged ideas of an easing in the volatility which marked much of 2017, which has seen Rotterdam values soar from $790 a tonne at the start of the year to $857 a tonne by mid-January, only to retreat to $645 a tonne by mid-June.


“Prices are currently at $667.50 per tonne, and expectations are that they will be stable around this level at least for the first half of 2018, as growing consumption in India and Asia continues to absorb the projected supply increases in the early months of the year,” the group said.


Prices of higher-value crude palm kernel oil, an alternative to coconut oil, remain close to the $1,242 a tonne at which they ended 2017.

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