It seems like our research assistant Mita has developed a genuine interest in farming, honing the craft from our in house soft commodity guru Wilianto. She talked to Indonesian Farmer Association and found out that the association predicts around 3m ha farmlands would be damaged by the early dry season. They are also looking at around 9m tons of production loss in 2010, or 13.8% lower than 2009 level.
On the contrary, Central Statistics Bureau is still forecasting Indonesia to produce up to 64.9m tons of un-husked rice in 2010, or up by 0.9% YoY.
In agreement with the farmer association, the Meteorology, Climatology, and Geophysics Agency (BMKG) forecast early dry season may hit some parts of the main rice-producing areas. Around 1.4m ha of rice field or 11.5% of the total harvested areas could suffer from longer drought. Some 130,356ha would have excessive rain fall. Indonesia may lose around 7.15mn tons of paddy or 11% lower from 2009’s production.
This could obviously have potential implication to inflation. Indonesia needs to fix its irrigation management and distributing high quality rice seeds to deal with the problem. Securing fertilizer is another challenge.
All of the above underpins our bullish soft commodity theme. We like plantation sector and top picks in the sector are London Sumatra (LSIP IJ) and if you don’t mind smaller cap, BW Plantation (BWPT IJ) offers good value.
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