Thanks for your input Michael on the scientific part of palm oil plantation. It is good for me to learn new techincal part of the plantation as well

We have to take into account that prices will not remain stagnant. It goes up and down daily but the long term trend is upwards over the last 20 years due to its fundamentals being a strong food based commodity. 97-98 is the lowest point of the economic cycle. As it is about 10 years since 97-98, it is well predicted that this is another cycle of downturn which naturally happens. However, one should also take note, after 97-98 the law of economic cycle took into effect and the upward trend takes its course.

For the CHGS investment, economic cycle downturns are well taken into account. In fact we expect 2-3 downturns during the course of the investment. Which is why the returns are stretched out to 23 years and capped at 17% max (due to downturn factor). As investors, even if CPO prices drop for 1-2 years lets say similar to 97-98 which is almost the production cost, they still do not lose anything. Why?

1) At close to production cost, dividents are still paid out during those years, although lower, at 5-6%. During these bleak period, I doubt that any other investment instrument will continue to offer good or even any returns.
2) As investors are acquiring land in 1/4 acre plots, as you have pointed out although land scarcity may or may not affect the yield prices, it does affect land. When the land prices increase, the investment value also increases. This is the 2nd part of the returns for investors, as 6 mths before the contract is completed, an independant valuer will value the plantation and proceeds plus capital appreciation shall be returned to the investors. If we take a 20 year look at the prices of plantation, no doubt the prices will increase. How much increase will depend on the market in 20 years time plus other factors. On average, last 20 years fully equipped plantations with good access average out to RM8,000 per acre and now the average is about RM30,000+ (375% increase).

From our feedback from plantation managers and plantation owners, if in the worse case scenario for 1 particular year the FFB/CPO price really does drop rock bottom to production price, it does not stay rock bottom forever as there is a mechanism to counter-balance the price drop. If it is no longer profitable to harvest, what they do is, they simply do not harvest. When there is still demand but very little supply, prices go back up. It is not only for palm oil but for all food based plantation. When economy goes down, people do not need to buy goods and services, but they still need to eat, so that is why for food based commodity no doubt there is daily fluctuation, in the long term the trend is always upwards.

* on a side note, US has become our 4th largest importer in a short period of 2 years. Actually their biodiesel industry does not use our palm oil much, but instead they use what they have in abundance ie. corn oil. When this happened, they needed something to replace their consumable oil. Palm oil being the cheapest and also what you pointed out, higher in claorific content (basically safe and healthy), become their replacement for edible oil. Another major use is for their food packaging (their packet food eg chips etc which is another billion dollar industry). Previously they used artificial transfat oil to coat their packaging but once they found out that this caused health problems ie cancer, they used palm oil as a replacement as it is natural transfat oil.

This post has been edited by DannyOP: Sep 18 2008, 12:34 PM

Hi Danny,

Good points... Touche. I hope you didn't mind me pointing out some of the concerns that needed consideration throughout the earlier discussions?

Overall, the scheme seems plausible with little downside risk. But please allow me just summarize what I gather right now, and correct me if I've understood it wrongly:
(1) Investor returns are more or less assured, i.e. even in bad economic conditions, investors can expect a 5-6% dividend declaration.

(2) Capital appreciation is independant of dividend returns, as long as the investor maintains holding power till contract term ends.

(3) Being a food crop, demand is assured. Pricing is independant according to market force.

(4) Capital protection by Trustee (?).

(5) Liquidability of investment high, i.e. low risk of being insolvent due to land agreements.

So far correct?

Some other questions to ask:
(1) According to what has been explained, this investment portfolio is similar to land pooling agreements practiced by some agricultural communities. Now, is there a minimum holding period for the plots after Commencement Date, or are investors free to trade the plots as do shares are traded? Meaning, is this investment to be treated as how shares are treated, i.e. buying/selling a part of a business? Or are the individual titles issued to all plot owners where there is need to transfer titles and other legalities as per landed property transferance?

(2) I didn't come across any mention of an attached mill. Should I assume that the plantation will be marketing FFB to an independant miller? What contingency plans are in place should the mill(s) fold, or refusal to accept FFBs?

(3) The prospectus stated clearly that should annual CPO prices fall to between RM800-RM900, no nett yield would be paid out irrespective of FFB output. So assuming that CPO prices stay above RM1500, then 5-6% per annum is payable regardless of the plantation's performance right?

(4) Since 30% of the plots belong to the Company, does the company have voting rights? Or are voting rights exclusive to Growers alone?

(5) As this investment portfolio spans 23 years, should the Growers opt to vote for liquidation of portfolio prematurely (before 23 years), would this be permissable? How are Grower profile kept, i.e. how does the Company track Grower movement to ensure full turnout for voting rights?

(6) I assume that for any business unit, there would be interim and annual reports issued to all investors. Would this include scheduled investor visitation and inspection of the business unit?

Thanks ahead.

Hi Michael,

No problem I am sure in any investment we have concerns and I am glad that a plantation expert such as yourself manage to ask on behalf of people who do not know much. I will try to answer to the best of my capability :-

Everything you understood is correct so far based on the CHGS investment.

The terms & conditions as well as the dividend payouts are stated in the Purchase agreement (you are free to download from www.chgs.com.my). Dividen payouts are not estimated or projected, but a contractual duty based on :-

1) 8% fixed returns for 1st 3 years (planting stage)
2) % based on yearly CPO average from 4th year onwards (for each price segment there is a dividend that corresponds).

Let me answer your questions one by one :-

1) There is a minimum holding period of 1 (one) year from date of agreement. After 1 year, trading is similar to selling of shares. There are a few ways of selling :-
a) via the management co. (ie offer to sell back).
b) via CHGS sales agents (secondary market sales)
c) via your own

2) The management co. has allocated 1,000 are for its own & as part of the plan to build a mill when it is viable (ie enough production yield). For the early stages, it will be sold to the nearby mills, which is adjacent to CHGS. Next to CHGS there is a 100,000 acre Felda palm oil plot. The contingency plan is actually not really contingency but part of the plan ie. builing its own mill. Todate there is more than RM200 mil. collected which is more than enough to cover the cost of the mill. Upon completion of all the sales they would have collected about RM250 million. It is in the best interest of the management to build the mill when it is needed as they have accounted for the payment of the dividends and of course a better profit for their own.

3) The ultimate risk is stated in the agreement and prospectus that if the cpo drops to 800-900 (yearly average), there will not be any returns for that particular year, if price averages at 800-900. If the price drops for 1 month to 800-900, but goes back up, the yearly average will be taken into account rather than the 1-2 mth price drop. However, it is also stated by MYOB that the current production cost is between 1,300-1,500 (& rising) so this is the bare minimum in actual real world conditions. As you mentioned in 97-98 when the price was 800-900, during that time it is actually close to the prodution cost (that time production cost was in the 700+), but still approximately 20% higher. So the actual risk will be production or close to production cost & risk is only toward the dividend payout. Your capital/investment to the 1/4 plot of plantation land is still not affected as you are investing into long term capital appreciation as well which is a form of inflation hedging.

4) As per the purchase agreement & prospectus (also downloadable from www.chgs.com.my), the plot holders are equivalent to investors with rights stated therein. The main voting rights still belong to the management co. As investors, part of their rights are :-
1) yearly dividend payouts (as listed above)
2) sales/transfer of their plots after 1 year min holding period
3) rights to the sales proceeds of the plantation upon completion of agreement
4) in the event of mismanagement 3/4 majority of the plot owners have the rights to form a resolution to appoint another co. etc
* there are many more rights, obligations etc but it is too long for me to elaborate, if you have time or any other concerns it would be better to just ask me directly on a particular question or read the agreement and prospectus.

5) The grower profile is kept by the Trustee ie. BHLB Trustee. In regards to the liquidition of the portfolio prematurely, it is stated on clause 13.1(i) of the prospectus, in short if there is a mismanagement which prejudices the growers or fail to comply with the trust deed, the Trustee (BHLB Trustee) shall send a notice via post at least 21 days before the date of meeting as well as posting in the newspaper to inform about the meeting. During the meeting a 3/4 majority of the growers can form a vote to propose a resolution to replace the management or liquidate the investment or any other resolution. If liquidation of the scheme occurs prematurely, the original investment will be returned to the investors.

6) According to the agreement and prospectus, a bi-yearly propectus and report shall be generated by the management. (also downloadable from www.chgs.com.my) With regards to visitation etc it is handled by the Trustee (clause 13.1(k) of the prospectus) to hold meetings with an Independant consultant to obtain neccessary feedback and to ensure the development of the plantation is being fulfilled as promissed. This includes visits to the plantation and investigation of any complaints by the Growers (investors). If there is any non-compliance, the Trustee shall report to the Registra of Companies.

That's not how you determine liquidity. Liquidity is determined by the number of people that hold shares, and how easy it is to sell a plot to someone else, if you suddenly need the money. For instance, the share market is very liquid, there's almost no chance that anyone will not find buyers for shares (especially in blue chip companies.) Can we say the same about this?

All the value in the world will not be able to be realized if you can't sell it.


This post has been edited by wodenus: Sep 18 2008, 03:53 PM

Wodenus, you are right. What Michael J said about the low risk factor is mainly on the capital protection rather than liquidity. Liquidity is how easy you can convert your investment into cash. I would rank CHGS land investment's liquidity higher than property (residential/commercial) due to its high transaction and low prices but lower than shares. We have to be realistic when we invest in land and property, it is meant for a long term to realise its full capital appreciation. If you buy a house today and sell tomorrow, you definately lose money immediately. For high liquidity it is better to keep your money in the bank. At least you don't lose anything when you sell. This invesment is not meant as a competitor for shares but as a good alternative to building your retirement income or getting stable passive income. Our investment aim is to encourage people to aquire land and getting passive income from it for your various needs eg. yearly holiday, child education, retirement, savings and also as an alternative to bank FD.

How liquid is CHGS in terms of real world sales? I would rate it slightly better than residential/commercial property as there is an average of 1,000 transactions a month and the price at RM8,000-10,000 is a more liquid than a RM500,000 property.

If you wish to exit the agreement before its completion of 23 yrs, on the average, on average it takes 1-3 mths to sell your plots depending on how much you wish to sell :-
1) if you wish to sell at par value, then it usually takes 1 mth to complete the sale.
2)If you wish to sell much higher, our sales agents of about 600+ will look for a buyer who is willing to buy at your price.
3) the co. has the 1st priority to offer you a purchase, if you accept at their offer, then you can sell it immediately.

* While waiting for your plots to be sold, you will still be collecting your dividends, so you do not lose anything. For example, the next dividend payout is Feb but you sold your plots the month before ie January. You are still entitled to 11 months of dividends. Unlike FD or even interest bearing shares, if you remove before the divident payout you get nothing. So while waiting for your plots to be transferred, you are still gaining daily income.
* Min holding period is 1 year, you are not allowed to sell if you hold it less than 1 year.

I hope this answers your question.

This post has been edited by DannyOP: Sep 18 2008, 04:39 PM

Thanks Danny. Yes, I was pointing on the capital appreciation bit, not liquidity in general.

The Trustees and the consultant would do the visitations, but what if the Grower intends to visit the property on their own? This is similar to many listed plantation companies, where shareholders do come for brief visits to check their investments. Are they allowed to do so? As you've mentioned, a large number of Growers are plantation operators/owners themselves, and they might have some suggestions or might like to be educated themselves about current management practices.

By the way, who is the consultant?

The growers can visit the plantation on their own if they wish to, actually some investors visited before they decided to invest. After visiting they were more confident as they found out the plantation is next to the Gua Musang highway and there is easy access to the roads. The site tour and visit is also updated on the chgs website :-

http://www.chgs.com.my/sitetour.asp

Here're some of the pics (what do you think about the progress?) :-





I have to check on the name of the consultant for you, will get back to you once I have the details. The consultant's job is to conduct a semi-annual review and inspection of the plantation and this will be submitted to the management co., trustee and registrar of companies.

This post has been edited by DannyOP: Sep 18 2008, 05:22 PM

Mmm... Picture looks good.

I think for 1+ year and still at the planting stage, they are doing a decent job. Also the fact that they own 10% of the plantation and are contractually obligated to pay out dividends every year means the management have to work harder and it is their best interest to maximise the yield and profits of the plantation over the 23 yr period.

* Btw on the 3rd pic the highway is the Gua Musang highway which is adjacent to the plantation. Maybe those of you who are familiar with Gua Musang would know where it is. At RM30,000+/acre, we have feedback from plantation owners even those nearby Gua Musang that it is a very fair price, considering it comes with management, yearly dividends even at the planting stage and allocation for a mill.

CPO prices also stabilised today to above 2200+ due to the technical correction of crude oil and increase in soyaoil prices. When crude oil stabilises it will be good for the economy as well, around 100/barrel it will also curb over-inflation. Acc. to Bursa Malaysia Derivaties the CPO futures have a strong support for +/- 2400-2500 up to July 2010. (Starbiz page 10).

This post has been edited by DannyOP: Sep 19 2008, 01:25 PM

Not sure how those analyst got their information, but we on the inside know this tumbling is far from over... It now depends whether Pakistan will complete deals to take up their proposed sum of CPO from us. If Pakistan defaults just as China does, and the soy oil production continues to increase (as cautioned in an earlier post), then that RM2200 base for this year is a no-go.

Yes, there is a good chance for CPO pricing to keep around RM2400 in third quarter and fourth quarter 2009, but there is still a lot of uncertainties. If the production of soy oil by the South Americans and those in India and China far supercedes the estimates, then it would mean CPO pricing staying below the RM2200 mark for quite a while.

Besides, do you really trust Bursa Malaysia's projections? About 5 out of 10 calls take a different turn.

In the world of commodity trading, I agree those are all the risks a trader will take. I don't think I have the heart to be a speculative trader, the suspense will just kill me lol too many ifs and buts. Of course the gains are higher but so is the risk as you mentioned.

Luckily at CHGS we are a land based investment with productive food based commodity grown on it. Over the long term, food prices and land prices, due to its strong fundamentals (necessity of food, world population increase (demand > supply), land scarcity (also demand > supply), inflation), will definately increase. In layman terms, people will always need to eat and have a place to stay. It is our basic necessity. In fact, the food price increase will be a major concern due to the exponantial growth in world population. We simply don't have enough land and food to cope. Just take the price of a teh ais 3 years ago at RM0.70, now it is already RM1.20 or more.

* News update, as of 23rd Sept, all of our RM8000 phase plots have been sold out. I would like to thank everyone who have supported CHGS and will continue to update for future releases. The 2nd year of dividends will be released by 14th Feb 2009 at 8% p.a.

This post has been edited by DannyOP: Sep 24 2008, 03:27 PM

Hi Mike, thanx for the reply. Yes it is flood prone, but with good drainage and watergate system, the irrigation can still be manageable as the soil is known to be exceptionally fertile. Anyhow, areas around sg perak is bound to be flood prone considering that the government has not been doing much effective control the of the flood problem. The perak river siltation problem is not getting any better these days. The flooding of T.intan town just shows the seriousness of the problem despite the money poured into the concrete embankment. Periodical maintenance to control the siltation shoud be addressed by the relevant authorities. As long as the silts built up, the river will be shallower and with the rainy season coming up, the sg. perak is bound to overflow again.

Yes, the current market seems to be overflown with people trying to make a quick profit from the oil palm industry especially with the shortage of seedlings. Recently been offered by some agents, supposedly seedlings from UP seeds which promises to give exceptional bunch size in the early first 5-6 yrs of planting. Of course the price was like twice the average seedling price. So is this another one of the fraudster or is it true? My guess is another fraud.

Well, seedling prices have almost doubled over the last few months, that's for sure. What's the name of the agency? A nursery operator I guess? Soon Soon Plantation, Ziran Trading, and United Agri Harvest in the Teluk Intan and Slim River area do have UP materials, that's what I'm certain of. But honestly, with seedlings, it is quite hard to know, unless you ask the operator for the official letter given out by UP to attest the seedlings' origin.

And yes, UP's materials do give exceptional large early bunch sizes. However, even the best material in the world would not reach its full potential without good agricultural practices. Do note that UP is one of the best managed agricultural entity in Malaysia. With their high standards, it wouldn't be a surprize to see them getting 20tonnes FFB in the first harvesting year alone. That's about 10-12kg bunches for every 36-40 month old palms. Their newer materials have even shown 40tonnes FFB for 4-5 year old palms.

Hmm.... I have a strange feeling that we've met before.

Haahaha.... i doubt tat we haf met before coz i am a newcomer into tis industry.
Btw i didn't know Soon Soon Plantation has nursery in Lower Perak area? I thought they are based in Nibong Tebal.

Since u r so familiar with UP, may i know what are the different types of seed materials that UP is supplying to the nurseries, or are all the seeds of the same type? At least when we buy from the nurseries, we can specify the exact material tat we want.

Haha... Well, it was just a hunch that's all.

Yes, Soon Soon Plantation is based in Nibong Tebal. However, I heard that they also have another small nursery in Lower Perak region. Not sure if it is the same operator or just similar named.

Haha... different types of materials? Tell you a "secret" lar.. most other producers who have "various" materials, are actually selling the same thing, just that they've been rebranded. Of course there would have been some level of selection done, but the improvements haven't been something to shout about. As far as UP is concerned, they only sell two materials: the DxP, and the Sawit Perdana Biclonal Seeds.

Let me just elaborate a little about the Biclonal seeds, as so far UP is the only producer with more than 6 years of knowledge on the production of these premium graded seeds.

In the industry, cloning of oil palms have always been seen as a means to improve the performance of the industry, as cloning basically replicates individual palms as identical individuals, with uniform character and behaviour. Hence, cloning high performance Tenera (DxP) palms and planting them out could result in fields with uniformly high production palms which could give extremely high yields. How high? Let's just say some clones have been reported to give about 10tonnes CPO per hectare easily.

However, there are a few problems with cloning oil palm. For some reason yet to be resolved, cloned oil palms have not been performing as expected. Some problems include severe bunch failure, mantling, somaclonal variation etc., and the problem can be quite severe. However, the brains at UP came up with the idea of cloning the parents of the DxP hybrid progenies which showed high performance, and then crossing them again to produce hybrid seeds. The theory was that by doing so, they could produce large quantities of high performance DxP hybrids. Hence, after many years of research, they have come up with a unique system and methodology that enabled them to clone the parents of the DxP hybrids, while reducing the residual effect of the cloning process. This resulted in the Sawit Perdana Biclonals Seeds, which do not have the problems associated with cloned palms, but have the high uniformity instead.

In Peninsular Malaysia, there are only a few nurseries that do carry the Biclonals, as West Malaysians are little more stingy (joking here.. haa..) and would go for normal DxP. However, the biclonals have become a major hit in East Malaysia for a number of years now, and many major plantation there without a seed production facility are demanding these biclonal seeds. And yes, you read it correctly: DEMANDING.

For a quick reference, UP is selling their DxP seeds for RM1.85, while the Biclonals are sold at RM2.50 each. However, according to the nursery operators there, UP seeds are fully booked till first half of 2011.

This post has been edited by Michael J.: Sep 25 2008, 12:14 PM

Sorry to digress, but since this thread is on CHGS, Michael, what are your views as a 3rd party on CHGS as a plantation scientist? Since it is a capital protected investment, that part is covered (ie. Trustee will return the initial capital to investors should there be a default by management or early termination). The only questions I myself would like to know is on from the 4th year onwards (ie. 2010, during harvesting stage) :-

1) What is the likely harvest per hectare (ie. MT/hectare) for palm oil trees during their harvesting years (year 4 to year 23)?
2) Is it true that cost of production is getting higher every year? What is causing this to happen?
3) Is 2100 yearly average CPO price a fair price for us to expect and to inform our investors for 2010 onwards? If yes, why, if no, why?
4) Do you agree that land scarcity and CPO price will be the main factors to determine how much an oil palm plantation land cost over the next 20 years? For example 20 years ago the average fully equipped plantation land cost RM8,000 p/acre and now it is +/- RM30,000, what are your expectations in the next 20 years? Of course, these are all predictions that nobody can say for sure, but no harm asking.

For D-Tourist,
1) Have you purchased your plantation land yet?
2) What has attracted you to invest into a palm oil plantation land?
3) Judging from economies of scale, a min of 50 acreas will only be viable. Do you agree on this?
4) What is your expected yearly net profit (in terms of %) from your investment?
5) What is the average price that you expect to get for your FFB from your nearby mills?
6) Who will manage the plantation for you, will you take an active role in your management, or do you think it is safe to assign it to a 3rd party?

This post has been edited by DannyOP: Sep 25 2008, 03:55 PM

Thanks for the detail explanation. West Malaysian does seems to be generally stingier... hahaha... but perhaps i may also be due to the higher investment and maintenance cost they haf to bear compared with East Malaysia. Perhaps tats why they tend to be careful in overinvesting and therefore unable to recoup their loss. Land over here are so highly priced these days. Anyhow, the nurseries are sometimes very protective on their knowledge of the different seeds and tend not to pass on the knowledge to the customer.

Any idea which nurseries around perak that has these Biclonal seedlings? Soon Soon?

---

Added on September 26, 2008, 3:01 amHmm.

Not yet purchased my own land. But is somewhat involved in the management of an estate.
Land is gold As long as the land & price is right, why not
Economy of scale only applies when u r not directly managing ur own estate but instead rely on 3rd party. There are lots of small landowner that generates high yield exceeding many medium large estates without economy of scale. 50 acres in terms of oil palm estate is considered very small, and at most need 2-3 person to handle it. So i sincerely doubt any economies of scale can come in at that level.
Well in any business investment, a healthy net profit of > 10% is expected unless u r dealing with trading/retail. For plantation, u should at least expect 15-50% becos of the cyclical nature of oil palm commodity.
Average price?? U mean extraction rate ar? Depends on ur material, tree maturity and locality.
Naturally all investor should take active role in management of ur investment unless the investment is immaterial to u. Safe only if u monitor it closely. In this line, there are numerous cases of relatives cheating relatives. So there is no concept of safe in business. Safe only when u put ur money in fixed deposit and keeping it within the insured amount of RM60K by PIDM. But then again, who will insure PIDM against failure like AIG in America? hahahahah!!!!


This post has been edited by D-Tourist: Sep 26 2008, 03:01 AM

D-Tourist,

Nope, Soon Soon doesn't have it. Neither those in lower Perak region for that matter. But I've found out Greenharvest from Johor might be receiving some next month.

Actually bro, it's about comparable. Although one might be able to get land in East Malaysia for a few thousand ringgit an acre, yet due to problems and costs involved with mechanization, transportation, marketing, and other downstream operations, plantation management over there is just as challenging and costly. Do note that most of the land in East Malaysia are actually peat, or logged over land. Contrary to popular belief, logged over land is not good soil but marginal soil. Peat soils are hard to move in; I recall one planter explaining to me how he lost a tractor there once when it got stuck in a peat dome.

I feel at the end of the day, it's about mindset. I'm West Malaysian, but I tell you now that the East Malaysians are more open to innovation and change than West Malaysians. Heck, take the example of the E.K. (pollinating weevil). Who started the ball rolling? Wasn't it the East Malaysians? They funded the whole thing, while West Malaysian planters sat back contented with whatever they were getting (about 15 tonnes/ha or so).

Danny, I'll answer the questions as best that I can. My discipline is plant genetics and husbandry, not so much on plantation economics.

1) What is the likely harvest per hectare (ie. MT/hectare) for palm oil trees during their harvesting years (year 4 to year 23)?

Ans: It varies. Agriculture science is not straight forward as other sciences, as many factors are at play here. Just the biological aspect alone gives multiple variables. However, assuming it is an inland alluvial area as in Gua Musang area, you should be looking at spread out yields of about 25 tonnes or so. Terrain is another crucial factor, hilly areas should receive a discounting factor of another 10%-20% depending on elevation and soil profile. Of course this depends a lot on your material, with those having vigourous growths facing the greatest water stress problems. Now because it is an inland alluvial zone, you shouldn't have much problem with ganoderma disease, so at least 70-80% of the palms should live till 22-23 years old. These all given that the estate is managed properly, with the right combination of fertilizer inputs, water management and P&D control.

2) Is it true that cost of production is getting higher every year? What is causing this to happen?

Ans: Cost is ALWAYS increasing. I would imagine the main contributor would be in the running costs, i.e. fertilizers, chemicals, fuel, wages etc. Capital items not so much. Although chemical costs can be negotiated, and fuel cost had been more or less controlled (despite being charged corporate rate), fertilizer costs are at the whims of world supply, and that component yoyos a lot. Just an example: Early 1990's fertilizer cost per palm was about RM4-5 only. Late 1990's till early this century, fertilzer cost were about RM6-8 only. Now, some planters are saying it costing them about RM20++ per palm. But even say we take it as RM8 per palm, for an estate of 10,000 ha with 136 palms per hectare, the cost of fertilizer alone is more than RM10million. A one ringgit increase in fertilizer cost per palm would mean an additional RM1.36million cost already.

Furthermore, wages is always an issue, unless the estate is not under MAPA-NUPW collective agreement, then that's a different story as they can give wages as how they like. But then again, an estate not under their wings is quite likely to land in the labour courts very often. Under the collective agreement, current wages stands at RM23.70 per worker per man day. Previously when CPO prices was high, it stood at RM30++ per man day. That RM6.40 is quite significant if you have say 300 workers, working 26 days a month for 12 months, which is almost RM600,000 extra for that year (should it persist throughout the entire year).

What's the cause of ever increasing costs? Again, multifactorial. But I guess you get the picture from what I mentioned above. I haven't factored in fuel, logistics and marketing costs yet, but compared to the effects of shifting fertilizer costs, those factors are not too drastic.

3) Is 2100 yearly average CPO price a fair price for us to expect and to inform our investors for 2010 onwards? If yes, why, if no, why?

Ans: Wow... That's a really tricky question. Let me put it this way: If CPO prices stay around RM2100-RM2200, large plantations can still survive. To forecast so far ahead is folly, as market sentiments are fickle. According to reports coming out from OILWORLD, South American oil crops are expected to hit a bumper production, while China oil crops could hit a marginal production. These factors alone could result in the flooding of the market with soy and canola oils, which would cause prices to plunge in those oils, forcing CPO to follow suit.

Right now, market sentiments are still keen on palm oil's prospects as a biofuel source, but seeing how the EU has revised their MANDATORY biofuel laws from 10% to 6%, it would appear that palm biofuel may not catch on there. It would be more likely that the EU and US would rather use their rape seed oil, canola oil and corn ethanol rather than palm oil for biofuel.

4) Do you agree that land scarcity and CPO price will be the main factors to determine how much an oil palm plantation land cost over the next 20 years? For example 20 years ago the average fully equipped plantation land cost RM8,000 p/acre and now it is +/- RM30,000, what are your expectations in the next 20 years? Of course, these are all predictions that nobody can say for sure, but no harm asking.

Ans: As with any property, it's all about the location. It may or may not appreciate over time. For example, the area where Putrajaya and KLIA is now used to be oil palm land, going at about RM15-20k per acre a few years back. Just as Putrajaya's planning were conceived, the land there shot up to RM100++ for every square foot, or RM4.35million per acre. Crazy right? That area was so secluded, and was more like a cowboy town previously, but now it is a posh area where some of the rich and famous call home.

I do not agree with you totally on that point actually. There are so many places where agriculture land has been converted to housing, and yet the land and property prices did not appreciate even after 7-8 years. As you put it, 20 years ago land was costing RM8,000. But that was at that time, in the late 1980's, and RM8,000 was still a lot of money then. Heck, average wages for junior execs at that time was only about RM1,200; now it is about RM3,000. However, if there is an accute shortage of land, then yes, most definitely that would lead to high land price.

The recent land pricing is more of a greedy seller scenario. I still recall that just before CPO rallied, land prices were around RM20k and less (planted with oil palms on good, flat land). But soon after CPO prices began to rally, prices of agriculture land shot through the roof. The correction factor is yet to come, as many newcomers think that with CPO prices being above RM2000, they can make a lot of money, and so willingly pay the exhorbitant prices charged; yet they fail to realize the cost of running an estate is very high, and this is not just a recent thing. However, the mob minded being the mob minded, should CPO prices rally sometime in the later future, then yes, it would be quite likely that land prices will soar even higher.

Just to share, recently I received offer with MBB CC. RM9,000 per plot now.

Option 1
12-Month Installment Payment Plan (IPP)
0% interest
Purchase minimum 2 plots, enjoy 3D2N at Palace of the Golden Horses with room rate of RM260++ (per night) inclusive of one (1) or two (2) buffet breakfast.

Option 2
Purchase minimum 2 plots, entitled to 2D/1N stay at Palance of the Golden Horses

Purchase minimum 2 plots, entitled to 2D/1N stay at Palance of the Golden Horses
TCM Wellness package at Golden Horses TCM Wellness Center (120 min) or Aromatherapy Massage at Jojobali Spa at Palace of the Golden Horses

BTW, I'm not working/related to CHGS/Mines/etc.

That sounds nice....

Anyway, now that CPO is below RM1700, how would the payouts be like?

Honestly, the situation was worse than what we had forecasted. We did not expect both China and India to bailout suddenly. A contact of mine from the Economics Unit at the Danish Council told me privately that world edible oil prices are likely to keep spiralling down over the next 2 quarters at least. Her current trends model indicated CPO prices to hit RM1200 very soon.