Credis Suisse ASIAN CPO: Cut to Underweight- CPO RM2,600 2010F but RM2,300 2011F

CPO price outlook is short-term positive but mid-term negative! Despite peak production season due to heavy rains (La Nina), harvest is expected to below expectation (likewise for substitute soya harvest due to dry season in US) and hence supporting 2H CPO price (October Future is now RM2,619/t, In Line with RM2,600/t for average 2010F). 2011F will see benefit or heavy rains boosting output and the 2006 industry new planting to mature, therefore CPO price to decline to RM2,300/t for average 2011F! Therefore, UNDERWEIGHT into strength ie TAKE PROFIT AALI into strength

· Tan Ting Min/Teddy Oetomo (Daily attached, Report available on request): Short term – weather vagaries will likely dominate. La Nina might have already begun in June 2010. Poor palm oil production, coupled with a weak USD, has supported palm oil prices. Palm oil prices are expected to seasonally rise at year end. We raise our 2010 palm oil price estimates to RM2,600/t.
· Contrarian call – bearish on palm oil prices in 2011. We are bearish on the palm oil price outlook for 2011, as we expect palm oil output to surprise on the upside with 1) the reversal of tree stress and good rainfall, which will likely boost output and 2) new acreage maturing. We cut our 2011 palm oil price forecast to RM2,300/t.
· We downgrade the plantation sector from Market Weight to UNDERWEIGHT on a 12-month basis, as we downgrade IFAR, SGRO and LSIP from Outperform to NEUTRAL, and GENP from Neutral to UNDERPERFORM. We are now 3-36% below consensus. We maintain our OUTPERFORM rating on Wilmar, as it is a proxy to China’s strong domestic consumption.