Depends on your soil type. Coastal soils are actually quite fertile, especially along the delta regions. However, they are also the perfect breeding ground for ganoderma, which can rapidly kill the oil palms. But the area you are referring to is actually of marginal fertility, so add that with possible ganoderma problems, and you have a pretty bad combination.

Just a few more things to add to your consideration:
(i) What's the average yield per hectare? At 136 stand per ha, you should be getting about 18tonnes per ha for that age profile on coastal soils.
(ii) Is it a low-lying area? Flood prone?
(iii) How's the sanitation of the field? If it is grassy, and the fronds are not stacked properly, you're gonna have a headache bringing it back to shine.
(iv) Could you tell more about the palms themselves? What materials are they from? Are they IOI, Guthrie, Sime, UP, Golden Hope OR any certified seed producers?
(v) Inspect the field: Check the sex ratio. How many male flowers are being produced vs. female flowers. Now the palms are in male cycle, so you need to wait a few more months before the cycle breaks.
(vi) Was the land planted with coconut before? If it was, chances are the ganoderma inocculum is already there, so no point buying it up.

250 acres (100ha) is a pretty sizeable investment. If ever in doubt, it's better to keep on the safe side, especially since you have noted that the palms do not look good. And RM30,000 per acre leasehold is too pricey.

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Added on July 30, 2008, 5:47 pmI thought there has been a halt on forest to plantation clearing announced recently? Or does that only apply to East Malaysia?

Hmmm... a rough guide for replanting from old oil palm stands is about RM9,000 per ha. With prices now, you should increase that by another 30% to around RM12,000 per ha. But the total cost till maturity (assuming you do ablation like most major plantations) will cost you another 4-5k per year for a further two years, or a total of around RM22,000 till Year 3 per ha.

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Added on July 30, 2008, 6:02 pmLet me put it in this way: Agriculture has always been a low profit venture compared to other industries. With the exception of the cyclical booms, not all agricultural produce will give you good yields.

Certainly is the case with palm oil. Now, prices may look good, but in truth is it over-inflated. We in the industry are not making the "tonnes of money" claimed by many in the media. Because do not forget, other costs have also gone up as well: Fuel, fertilizers, labor, taxes (aka windfall tax....*grumble!*), and disease control. Those in East Malaysia are in a panic actually, as they are seeing their crude profits crashing to about 4-5k per ha recently with all the hikes taking place. 40-50million may seem a lot of earnings, but that is because the land and cultivation costs are charge out over a period of years. In fact, it appears that to recover the initial cost of cultivation, it will take up to the 10th or 11th year before the land and plantings costs are fully paid for with oil palm.

And don't forget to project in futures costs. Would you be able to survive in this venture if CPO prices fall to around RM2200? It really depends on the management of the plantation. A good management team can keep cost down to about RM900-1000 per ha per year. A not so good one would probably incur a RM1500 operation cost yearly.

Take it from the ironman of the palm oil industry:
In good times, anyone can make money from oil palms; it is the bad times that the goats get separated from the sheeps.

Just like in '97-'98.

This post has been edited by Michael J.: Jul 30 2008, 06:02 PM

Mmm... Sorry for the late reply D-Tourist. Have been really busy of late. And please, just call me Mike, or Michael if you feel that's too informal.. hahaa...

As Danny has pointed out, RM28,000 to a maximum of RM30,000 is considered a fair price for lower Perak region, as long as it isn't peat soil. From how you're describing the land, I have an idea where it is located, and the area is actually flood prone. Some flood mitigation had been done in the area, but not all the planters there had participated in the operation.

Regarding the seeds, let me put it this way: As long as it is coming from a certified producer, the material is good in terms of yield. All seed producers have to follow the minimum SIRIM standard for oil palm seeds. However, given the strong competition for the oil palm seed market, none will go for the lower spectrum. What you may want to consider are things like palm characteristics, which will affect the plantings on different terrains. Sime's (Golden Hope, Guthrie, and Sime) are characteristically more vigorous palms, meaning they grow taller faster. This might become an issue for harvesting when the palms are 12-14 years old and beyond. Also, note that more vigorous palms tend to suffer more stress on elevated soils than shorter palms, and have a tendency to lean on softer soils like peat.

Just a quick guide for seed selection

Felda
Yangambi based material, which has very high bunch number, good oil production. However bunches tend to be smaller in size, with thicker shell and bigger kernel. Palms are moderate vigour.

Sime (inclusive of merged companies)
AVROS based materials, which are notably vigorous. Moderate bunch number, with moderate bunch sizes. Good oil profile, and high oil yielding. Also noted to be very uniform in growth.

United Plantations
A class of its own. UP's selected materials are known for very high oil yields in excess of 30% lab extraction, and oil yields per hectare between 6-7 tonnes. Moderate bunch sizes, and moderate bunch numbers, but capable of reaching 35 tonnes per hectare.

IOI
AVROS based materials, similar to Sime's performance. However, recent selections have edged its oil production closer to what UP's materials are capable of.

AAR
Good planting materials. Refrain from commenting.

These above are considered to be large seed producers.

Other producers (now no longer available) are Unilever's Pamol, and SOCFIN. Both of these producers have materials similar to UP's. Check ex-SOCFIN's Johor Labis estate, you will know how good it is (OER around 23-24%).

However, one note of caution: There are now many fraudsters selling oil palm seeds illegally. These seeds might be from certified producers, but the "agents" they have no permission to sell seeds. Also note that seeds are sold as GERMINATED SEEDS, so any ungerminated or "preheated" seeds are most likely fakes. Needless to say, if the reseller cannot produce a certificate to attest the legitimacy of the seed source, they are likely to be those dug from under the palms, i.e. non-hybrids.

Please be careful about this, as the demand for oil palm seeds has become overwhelmingly high, and just as what happened in 1984, fraudulent sale of oil palm seeds nearly killed the industry. Be responsible, and buy only certified seeds.

Other than that, I believe Danny has given a very good explanation of things.

PS: Checked the latest CPO prices? Already below RM2200 lei.... The forecastings were correct all the while... And just a hint, South America is planning to flood the market with oil crop.

Hi Danny, you're quite close. I'm not an agriculturist, but a field-based plant scientist.

Mmm... I agree to an extend about what you noted there.

I'm with you on the first point, especially because vegetable oil is the cheapest source of calory. Palm oil is not only higher in calorific content compared to other edible oil crops, the oil palm is also the most productive oil crop in the world. On a per hectare basis, oil palms produce more than 3 times the average product of rape seed, soy bean, or canola annually. Hence, this makes palm oil highly desirable as an edible oil source.

But it is also this high productivity that stumbles point number two. Although land scarcity will make land prices expensive, that does not mean it will drive prices up. As agricultural practices become more efficient, the productivity of the land can be increased dramatically, which means you need less land to produce more. Let's just take one well known plantation as example: United Plantations Berhad. While the national average for palm oil production stands at about 4 tonnes per hectare, UPB has managed to up their productivity till 6-7 tonnes CPO per hectare. So for the production of say 100tonnes of CPO, an average plantation might need 25ha; UPB would only need about 16ha. Furthermore, oil palms are perennials, not annuals. With sustainable agricultural practices, it would be possible to retain the fertility of the land so that cultivation can continue for more than 100 years. Certainly, UPB has done that. Hence, land scarcity is not a major issue for existing and near future oil palm cultivation IF sustainability is maintained.

For non-plantation purposes, land scarcity will drive prices up, and yes, the demand for land will lead to higher valuation of plantation land. But that is deemed appreciation value on the property, and it does not mean it will translate into the cost of the final product.

About inflation.... if production cost goes up, will that really mean selling prices will go up? 1997-1998 was a pretty bad year for all oil palm growers; CPO was going for RM700-800 per tonne then. RM700-800 per tonne CPO at current costings means certain death to the plantation. Do take note that the average production cost at that time was almost 80% of the selling price of CPO, and many plantations folded. Similarly, the current pricing of CPO runs the risk to be a repeat of history as average costings stand at about 40% selling price.

Of course, as with most other commodities, CPO prices will not keep its downward spiral, and in two years time it might rebound to greater heights. But how certain is this? Look at other crops as example: Cocoa, coffee, rubber. All of these plantation crops used to be worth their weight in gold, but now have such low profit margins that they are not suitable for conventional large plantations.

On this respect of inflation, what should be looked at is not so much about the pricing, but the translated cost of production. Like the UPB example given earlier, if the plantation is efficient, then the effects of inflation is spread more sparsely. Right now palm oil is still traded close to the pool system, but what will happen if an efficient producer decides to sell his oil at a lower price? His profit margin will still be high, but his pricing will be lower than all the rest, which makes it more attractive. Although this may not make sense for conventional economics, there is sound logic for doing this.

Let's leave biodiesel out of the picture; the EU's new policy cleary shows that there is a bleak future for biodiesel. Only the US seems keen on it (makes sense seeing what they have done so far). Vitamin E, Carotene complex, and other nutraceuticals might lead to a niche market, but honestly, this is a downstream activity. Unless the plantation also has the facilities to extract, process, and package those products, this kind of niche market is immaterial to the plantation.

This post has been edited by Michael J.: Sep 17 2008, 05:59 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.

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?

Mmm... Picture looks good.

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.

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.

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

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.

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.

Hi Danny,

So now the primary investment is on the land itself, but not the plantation business, which is supposed to be a side venture? Ok, get the picture now.

Yes, I'm familiar with them. Trans-Agritech is quite ok. They incorporate a lot of UP, Sime, and IOI's methods, which by the way are the very few cost effecient plantations.

On a separate note, are you familiar with RSPO? That is the Roundtable for Sustainable Palm Oil production. The very first consignment has already left Malaysia shores, and is scheduled to reach the Netherlands on the 11th November 2008. Any idea if this RSPO requirement for all European imports will affect CHGS' sales and production? After all, China and India has already bailed out of their CPO contracts, so the EU is right now the biggest market. Pakistan is 50:50 on its deals with us, so they don't count.

I understand that the primary investment is in the land itself, but if the plantations venture does not provide an income stream for CHGS, I'm rather puzzled how the business unit is capable of still paying out the 8% stipulated. Does this mean the business unit goes into operation loss? Of course, the scheme does not directly trade in edible oil futures, but indirectly as the unit sells FFBs to mills and such, wouldn't the trading price of CPO affect sales of FFB? Right now, plantations with integrated mills are operating at costs of RM1200 and above, but for independant mills buying outside sources, my feedback from them is that their operating cost is about RM1400 minimum. As what had happened in Johore recently, would there be a risk that mills will reject or refuse to take in FFB from smallholders, or those with new plantings where FFBs average 8kgs per bunch?

This post has been edited by Michael J.: Oct 28 2008, 09:53 AM

Mmmmm.... That is actually bad estate practice... If one leaves bunches on the palms, you will get a lot of VOPs in the field later on, and worse still, it'll promote the proliferation of tiratabha and other bunch pests.

What can be done, is to stipulate a mandatory replanting programme for all plantings 20 years and above. In this way, you cut off about 20-30% of all production fields currently bearing fruits for the next 3 years. This is what I heard the government intends to do soon.

Another way, is by stressing the palms so that they go into a continuous male phase. This cylcle will last about a year, but then again it is very hard to bring stressed palms back to health.

Ditto D-Tourist.


A more immediate method will be to somehow "burn" off the extra CPO in stock. Right now a mandatory 5% blending is being drafted for biofuel use in Malaysia and Indon, and if that does materialize, we have 500,000 tonnes that will definitely be tied up. So what is left is 1.3million tonnes CPO in stock to sell.

On the RSPO thing, yes, there is a huge demand. In fact, the very first consignment will reach the EU on the 11th November. On average, one can get about USD45 per tonne CPO. So go figure.

Palm Oil certified under RSPO? It is about the same as normal CPO, just that now you're certified to be sustainable in your practices. You might like to check out RSPO's website: www.rspo.org

USD45 per tonne was about 10% premium over current price trends. So if your CPO sells at RM1475 now, you get about RM147 more for certified oil, or RM1622. But of course, do take note than as soon as 70% of producers come out with certified oil, the premium would be lost. Right now only 3 producers are certified as far as I know.

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Added on October 29, 2008, 9:12 pmYes, Cherroy that is exactly the problem, hence the use of the word "mandatory". Basically, the governments of Malaysia and Indonesia intend to forcesell CPO for biodiesel production and sale. It might be worthwhile if the OPEC manages to raise crude oil prices again with their cutbacks.

This post has been edited by Michael J.: Oct 29 2008, 09:12 PM

Awesome.....

Mmmm.... It is projected that even more defaults will take place. Well, there is some level of compensation stipulated, about 5% or so if I'm not mistaken. But consider that 5% of RM3,000 is only RM150, when the new pricing is only RM1450, you actually lose not much, but gain more than RM1,000 by defaulting.

The surplus should end my mid second quarter FY09. But do note, should does not mean would. Right now buyer sentiments are very fickle, so assuming no smartass comes out to make detrimental statements, then CPO prices should return to RM2200 by then. Otherwise.....

Otherwise plantations are in for the long haul, and only those that are cash rich, or backed adequately will survive. Those with too much debt, or are unwisely diversified might get killed in the fluctuative movement of commodities.

I'll tell you honestly, if not for their high debt ratio, and multiple damaged invested sectors, IOI would have been a really good company to speculate in. I give them one thing, that they have guts to invest. What a century old company happily dispose, they willingly take it up (the refineries in Netherlands).

Companies like United Plantations are also good, but they are not as daring to invest in something they are not confident in. Probably the main reason why they are so darn cash rich, and their stocks more worth to be held firmly rather than speculated. And probably also the reason why they are the first plantation to be certified for RSPO due to their meticuluous care in details and refinement.

Of all the plantations, only 3 would most likely make sufficient profit in the on-going crunch: UP, SIME, and KLK.

As for small holders.... Well, I've spoken to quite a few of them, and they are all losing money, on an average of RM200 per hectare for existing productive fields.