Felda Global Ventures changes management

From the Star:

Felda Global Ventures Holdings Bhd (FGV), whose market capitalisation is now almost half of what it was at its initial public offering (IPO) in 2012, is poised for a change in its top leadership.

Tan Sri Ismee Ismail is expected to replace FGV’s current group president and CEO Dr Mohammed Emir Mavani Abdullah, whose contract comes to an end this July.

Ismee, the managing director and CEO of Lembaga Tabung Haji (LTH), a position he has held for the last eight years, is speculated to be leaving the pilgrim fund and that the fund will be headed by Datuk Johan Abdullah.

According to LTH’s website, Johan was appointed as LTH deputy group managing director and CEO on January 15 this year.

Anyone will tell you a journey begins with a single step.  But with Felda, It's really just a step and won't solve legacy issues.

Replacing the current group president with the CEO of Lembaga Tabung Haji is not what I would say an ideal replacement.  Aside from financial engineering, it's doubtful a finance guy can be up to the task of putting Felda back on the right track.

Felda needs a few things, freedom to enact negotiations with suppliers, in other words, it needs to not be a punching bag for the Felda settlers.  They have to leverage their infrastructure strength to take the lions share of margins from it's suppliers.   They have to say"  pay the prices we want , or go find someone else."

As it stands, Felda Global Ventures has two major problems.  The first is that it is too lenient on suppliers.  The second goes deeper down on a political scale.  Felda settlers are very status quo oriented.  Basically the current government is in power due in large part to the settlers.  If FGV has the corporate will to push through reforms, the government may just stop them dead in their tracks.

To make FGV an investable entity, we need the government to give some sort of subsidy to FGV so they can make better margins. The second option is that they are able to go through corporate reforms politically unscathed.  I'll probably choose the first one of subsidy as the government just simply won't let their voting base erode away.

FKLI/KLCI and FCPO technical Analysis update

The FKLI has seen a rebound as of late.  While nothing is set in stone, a few of the bombed out oil stocks are picking up, as well as the index.  Support seems reasonably good.  With the anticipated Eurozone QE program on the horizon, most equity markets seem to be picking up.

The trend line has adjusted downwards to the new support at the low set a few weeks ago.  At this point the market may or may not see new highs.  It's anyone's game.  But below 1730, the market will look weak.



FCPO looks reasonably strong if it stays above RM 2,297, but the uptrend is all but stalled for the current period given the last few down days.  Given the predominate downtrend over the last few years, the market probabilities lend towards the bearish side.

Palm oil stocks as a hedge against a falling currency

It's no secret that palm oil is an international commodity.

From the Edge:

LA LUMPUR (Jan 14): Palm oil output in Malaysia may fall further this month as the aftermath of monsoon flooding takes its toll on yields that are already low for seasonal reasons, while growers in Borneo were now braced for the monsoon, which has shifted to that region.

Malaysia's weather office forecast better conditions over the peninsular region in the coming week, dispelling fears of a fresh wave of flooding in the coastal states of Kelantan, Terengganu and Pahang, which were hardest hit by last month's rain.

Palm oil is generally seen as a boring commodity, but it does have certain desirable properties.  For one, although it is priced in ringgit, Europeans buy the palm oil in US dollars.    The truth is,  it's kind of a running joke to have palm oil priced in ringgit as most of it is sold to foreign countries.

So, the net effect is that Palm oil companies won't be affected much by a weakening currency, with costs in Ringgit, while their revenues are in US dollars.  The majority of palm oil companies will see a bit of tasty profit.

FKLI and FCPO technical Update

The outlook for the FKLI has been erratic with sentiment just flipping from one direction to another.  It's a symptom of a hot and cold market with  a lot of uncertainty.  Trend reversals can be seen by the the trend lines flipping from bull to bear and bear to bull quite violently.  Now of course, the FKLI looks to be in this lower 1700s territory for the next few months.

FCPO is gaining ground over the last few weeks.   The sentiment is bullish with the directional trade indicator indicating more upside movement.  Most of the longs were shaken out a few weeks ago when the market traded crazily between RM 2,100 and RM2,200 a tonne.  Also we have had a v-spike test lower just two days ago which saw the market vault up yesterday.

Expect any spikes downward not to last very long as bullish sentiment is still with palm oil.

Long term technical outlook for FKLI, and the stock market and updates to FCPO.

The FKLI is one of the more difficult charts to plot trend lines for and interpret, My interpretation is that the uptrend is still in tact, set back in 2011.  But is losing steam especially with the current short term up trend over the last few days  fizziling out.

Given the weakness in oil price, I believe Malaysia might not be as attractive an investment destination as it once was due to the country basing its budget on higher price oil.  With all those dividends from Petronas used to fund the budget federal, There could be a shortfall.

But, the country also gains on subsidy savings, so perhaps it's not so bad.  The weakness in the ringgit tends to lead me to think Malaysia will be hurting more from lower oil prices than subsidy savings though.

If we are to consider the FKLI as an uptrend market, yes, the uptrend is still in tact.  But I actually think that we might hit down towards the 1400-1600 area some time in the future.  We certainly have the catalyst with lower oil prices.  If the market is able to come down, the next test of the trend line near 1780 could be a massive failure.

The trendline at 1770 in October is running at an increasing rate of about 8 points per month for those wanting to predict where the trend line will run in the near future.

Short term Outlook

Palm oil did an about face to the downside, pretty much at the area which i mentioned last week, the July breakdown point.  The resistance zone just took the uptrend and smacked it on its head.  Support is at RM2,220



The FKLI looks to be ending the upward movement after 3-4 red days.  Usually uptrends have just one down day followed by reversals higher.  This uptrend looks dead.  When we zoom in on the micro trends, we have two areas, the lower box and the middle box as possible support points.

FCPO and FKLI looking at the charts

We can see FCPO has pretty definitively broken to the upside.  I'm not surprised given all the analyst's bullishness, the seasonal tendency of making a bottom in the quarter 3.  I suppose the main thesis of the current bull run is whether or not crushers have stopped crushing soybeans to soymeal.

If they have, due to lethargic demand for meats,  Then palm oil upside will be there.  If not, then watch out, palm oil could come down as fast as it comes up.  But for now, the trend is higher.

FKLI is still ranging, although it looks like a bull run the last few days.  We can't be sure its trending up as the Trade Directional Index is still recovering.  The indicator hasn't reached the midpoint yet.  But It's pretty safe to say the current downtrend is over given the upward strength.

Live from POTS 2014 Palm Oil Conference Day 2

8:30 am: The Americas and Europe workshop.  South America is producing a lot of palm oil and the trend in oils is growing, although soy oil does seem to have the upper hand.

Russia imports most of its palm oil from Indonesia.  I'm surprised why Malaysia doesn't have a bigger market share in this region given its development of the industry here.  Seems like there is import tax on palm oil, but 20 metric tons on more, the import tax is zero.  A bigger bulk shipment gets zero tax.

Price difference between sunflower and cpo, usually has to be 70 usd per tonne or more as it influences price in order for exporters to be in the money.  Sunflower oil has large production by Russia and Ukraine

F corp group controls the port where palm oil is imported into Russia, in the Black Sea.

9:30 am: Ukraine does more exports of sunflower as Russia uses most of its sunflower oil for domestic consumption.   Sunflower and palm oil spreads can get wide as far as 300 usd per tonne.  Apparently that is where to make some money as the spread gets large.

Indonesia palm oil apparently is cheaper in the international market as market share from Malaysia is decreasing.   Despite weakness in Ukraine and Russian currency, the price per tonne of sunflower oil is still increasing.  It's especially good as Ukraine and Russian currency has dropped some 50 and 80 pct respectively.

Russia's and Ukraine's currency drop is quite drastic.  It will probably have a reduction in the country's demand. 

9:45 am: Unilever takes up 2-3 percent of palm oil production.  The way they monitor RSPO accountability is using real time satellite data to detect hotspots along with the mills that are nearby.  Seems like a reasonable way to help keep suppliers honest, and cost effective.  But critics can probably poke holes in some of the robustness of the processes of pin pointing the culprit of deforestation.

10:00 am:  Palm oil in Europe seems to have a negative perception in Norway and France.  They seem to be more concerned about the deforestation than the health issues.  Maybe palm oil should be renamed palm seed oil.  Apparently some people in Europe think palm oil comes from chopping trees down and making oil from the chopped trees.

US  concerns is more on the health issues compared to Europe.   The sustainability aspect doesn't seem to be as big a concern.  The are a net importer of vegetables.  Biodiesel use has increased but production of vegetable oil is mostly flat.  The regulatory environment isn't favorable for biodiesel with a one dollar tax credit no extended.  It seems to be in limbo.

The US apparently doesn't produce soyoil as a main product.  The production in soyoil depends on the soymeal demand for livestock.  Currently production is flat as with soymeal as livestock demand has flattened.

12:15 pm:  Africa seems like a growth opportunity but its share of palm oil imports remains small at only 1.5 million tonnes.  The middle east, including Turkey, Iran, and Iraq is more lucrative at 7.5 million tonnes, where almost all of it is imported.

12:30 pm:  China and India were talked about.  But I didn't quite get the opportunities there.  China has some problems with credit commodity traders, but it seems that is overall a small amount compared to real demand.  Bangladesh seems to import some 2 million tonnes  on its own, and criticized Malaysia on slow price quotations and pricing power.

Pakistan only imports some 20 percent of its edible oils in palm oil, so there is opportunity for growth.

Fatty acid is used in products like rubber and plastics and there is a big opportunity in those industries in China.  Palmatic acids are used mostly in household cleaning items and is an opportunity for growth.

2:35 pm:  Thomas Meilke is up from Oil World.  He says that looking at the mineral oil as a guide is a bit narrow sighted as the whole edible oil complex is huge.  He says the low is probably made in palm oil as there are other factors affecting the complex, even if mineral oil drops further.  The food consumption aspect is the main driver for price at the end of the day.

He is mentioning the same idea that soyoil production is constrained as crushers won't crush soybeans as there is little soymeal demand. 

Next issue is oilseeds.  Oilseed, namely sunflower, rapeseed, etc.  is dropping in production.  Because demand for oil is growing at 4-5 million tonnes, the actual forecast for growth this year will be at 2 million tonnes.  Putting support at these low prices.

Palm oil harvests for the end of this year and next year will likely be lower due to poor rainfall this year.    There is a lag effect to the harvests.  The current oilseed stocks are high, but is not a large portion of yearly production.  Actual oil and fat production is declining.  It seems that the stocks will be a temporary factor as it will get crushed and used up.

China demand is still fantastic and need to replenish their oil stocks.  Their demand is through the roof.  Keeping the status quo in mind for mineral oil, RM 2,200 to RM2,500 a tonne is where prices should fall within the next 12 months.

3:30 pm: Mr Benny Lee is up on a technical view of palm oil.  He noted when soyoil and palm oil spreads are small, the currency is correlated with palm oil prices more.  Prices likely bottom in 3rd quarter (aug/oct) and top out in the first quarter (feb/march).  He's looking for prices to move to RM 2,500 a tonne as long as prices do not dip past RM 2,000.

4:00 pm  Mr. Ling from Ganling sdn bhd.  New land area has slowed down since 2012.  A few reasons are environmental issues and poor agricultural land.  Indonesia is also slowing down due to a 2 year moratorium on new land for palm.  They are also facing pressures from the environmental groups.

Productivity can range from 0.5 tonnes to 5 tonnes per hectare.  Given all the land, productivity, replanting factors,  they are forecasting 77.7 mln tonnes by 2020 at a 2.7 mln tonne per year growth rate.  El nino can affect the output up to 24 months later from when the time period in question and output is affected detrimentally.

Weak El Nino doesn't seem to have a big effect on yields, but a normal El Nino drought does impact yields up to  15 percent.  Non El Nino droughts can affect yields.  The earlier drought in 2014, can affect yields in 2015.  Growth of 2.3 million tonnes in 2015 to 62 million tonnes is forecasted.  Weather is not ideal, but due to growth in land, growth in tonnes will still be positive, but slower than at ideal conditions.

5:00 pm:  James Fry from LMC International is at the podium.   Starts off with vegetable oils using Brent as a benchmark.  Brent is the floor for pricing of vegetable oils per tone.  High stocks of palm oil creates a low premium over brent crude.  Low stocks create a high premium.

The price in Rotterdam usually is at a premium over cpo in Indonesia, due to shipping and export taxes.  750 usd per tonne is when taxes trigger in Indonesia and Malaysia.

He sees crude as the most important factor, and is bearish as gulf countries have revenue targets have to be met for their budges.  Output will increase with prices below 85-95 USD a barrel.

He sees palm oil around RM 2,300 a tonne, but not much more than that due to crude oil prices.

5:40 pm:  Dorab Mistry from Goodrej International.  Palm production is not as good due to February's dry weather in Malaysia and  in Indonesia, production will be affected in the middle of 2015 due to the current dry spell in Kalimantan.

Soy produced in India is having trouble making soymeal due to demand.  Imports in oils is booming due to soybean crushing problems.  Biodiesel use of vegetable oils is mandated in 80 to 90 pct of current production.  Brazil has increased their biodiesel mandate by 1 percent.

World demand will grow about 3.5 mln tonnes due to food, and 1 mln tonnes due to biodiesel.  Predicts that RM 2,500 by March as lower stock figures come in over the coming months. 

Live from POTS 2014 Palm oil Conference

I'm lucky enough to get to attend POTS (Palm Oil Trade Fair and Seminar) 2014.

9 am: We had the introduction from notable vips from the MPOC.  The  morning talks have been centered around food security, sustainable palm oil, and challenges faced by foreign NGO's that have been attacking palm oil


11 am:  MPOC Tan Sri Datuk Yusof Basiron gave a speech about how prevalent the anti lobby against palm oil is.  Although Datuk Yusof has very good points, I'd like him to address NGOs from a less critical point of view.  A question about the haze he sort of laughed off and indirectly pointed to other countries by implying that Malaysia doesn't burn forests.  I can attest just driving to the airport that there was burning in Malaysia. 

The main advantage of palm oil is the low carbon footprint compared to other crops like soy, but if all those forests are burned to produce the low carbon footprint, then what is the net affect?   Burning an entire acre of forests is a lot f carbon footprint if you ask me.  If we can address these issues, palm oil will have less enemies.

He says we don't know why they are so critical on palm oil, but to me it is obvious as the haze problem has gotten extensive news coverage year after year and affects many countries in Asia.  No doubt the haze problem every year is one of the biggest recurring environmental debacles that there seems to be no solution to.  To be fair, it is difficult to combat but I suppose if we don't act, our end overseas customers will.

1 pm:  Jose Olivero Angel Garcia talked about biodiesel in Europe.  He mainly talked about the challenges palm oil faces in Europe as biodiesel use in Europe will be limited.  Europe has mandated that biodiesel contain 10 pct of sustainable blend of alternate oils.  Palm oil's share is growing but will be limited to about 10 mil tons per year from the 6-7 million tonnes currently.

3 pm:  Abah Ofon from Standard Chartered talked about opportunities for palm oil in Africa.  He starts out with some of the population demographics in Africa and how attractive it is for palm oil.  Urbanization helps drive demand for palm oil due to convenience foods and high protein diets.  It seems even Africa has a view that palm oil is less healthy than other edible oils.  Apparently plam oil has its media work cut out for them. 

There is heavy investment in Africa in palm plantations but even with all the heavy investment, it seems its not enough to keep up with demand.  By the time the supply comes online, demand will be even greater.  Shows the power of growth in Africa!

4 pm:  Dr. Kalayana Sundram from the MPOC talks about scientifically disproving some of the misconceptions of palm oil as unhealthy.  Much of the misconception stems from saturated fat leads to higher coronary heart disease risk.  Apparently this is not so as hydrogenized fats are the culprit to higher risk of heart disease.  This is also called transfatty acid. 

Apparently the US has accepted palm oil as an alternative to transfat oils.  It is expected the rest of the world will change their perceptions.  Even coconut oil as of late has gained attention for health benefits.  Compared to palm oil, it doesn't hold a candle apparently as red palm oil is shown to reduce stroke risk. 

If you ask me, palm oil just suffers from a lack of sex appeal.  How about them coconuts?  rolls off the tongue much better than how about those palms seeds?  Palm oil just needs a little sexy in its media campaigns!