I usually don't really believe in charts. I can tell you that if I had followed our Technical team's recommendations, I would not have done well. However, one chart that I follow and usually find quite useful is the Golden Cross (50DMA crossing 200DMA). Gold and silver did this cross earlier this year and now CPO have joined the club. CPO prices is up 70%+ YTD. After prices hitting a low in Oct last year, we heard that some plantation farmers have been abandoning their crops. Many don't even have money to buy fertilizers. CPO harvest down between 10-25% in some regions in Indonesia and similar trend can be observed in Malaysia
As such, yields have started to deteriorate at times when major imports like China and India demand for edible oils remain resilient. China’s imports last month gained 54 percent to 410,000 tons from a year ago and India’s purchases rose 34 percent. The supply and demand is tight. Inventory in Malaysia continue to fall from high of 2.27m tons in Nov08 to 1.36m tons in Mar09 (-13% mom from 1.56m tons in Feb09). The current improvement in US weather is good for palm oil/soybean price as it reduces risk of farmers switching from corn to soybean (corn planting season started earlier, if the weather delayed corn planting which will risk harvest quality, then corn farmers might be forced to switch to soybean).
This upward move on CPO has been driven by pure fundamentals in food demand/supply. Current price of CPO translate to $75 oil. We are one of the few brokers that has a bullish call one the sector. The street will likely have to upgrade overly bearish price assumptions.
We have a BUY on Lonsum (LSIP IJ) and Sampoerna Agro (SGRO IJ). For the most leverage we also like Bakrie Sumatra (UNSP IJ).
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