Indonesian Plantations Update: Gradual price recovery

Predictive Ocean Atmosphere Model for Australia (POAMA) projects a high El Nino probability (exhibit 1) with SST anomaly level above 1, threatening South East Asia, which would negatively impact CPO production in Indonesia and Malaysia.

Given that El Nino was last seen in 2009, its occurrence this year is likely, as interval between El Nino events is around 5-6 years (exhibit 2). However, we expect the real impact of El Nino on companies’ FFB production to only be felt in 1Q16, translating to higher CPO prices ahead based on historical records.  In addition, the price gap between soybean and palm oil has been rising, making CPO more attractive to buyers.

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