Saturday, June 14, 2014

Palm Oil Price

Plantation sector indeed is quite a complicated sector to analyse fundamentally as there are a lot of complicated factors such as rainfall, stock pile, global demand, palm oil tree age yield and import duty & taxes that affecting the palm oil industry. These factors are extremely important to analyse individual plantation counters. Usually I don't do the analysis myself but to rely on a few reputable research houses for their indepth analysis. However, if you want to know the bigger picture such as the palm oil price trend in general, perhaps I can offer some help here based on my technical analysis knowledge.

Firstly, let's take a look at the 30 year palm oil futures price chart to establish a long term view on the palm oil price historically. From the chart we can see that there seemed to be a repetitive behaviour in the palm oil price. Measuring from bottom to bottom, the cycle years are either 3 or 4. If we were to take the last bottom year 2011 as a starting point, the next bottom should be either in 2014 or 2015 (3 or 4 years). However, with the trendline analysis, it is quite obvious that the bottom should be this year as that's where the trend line is.

Next, we want to know the price target by measuring from the double top formation formed 2010 - 2012. 
The minimum target is US$668 if we were to take the lower height of the twin peaks and the time frame is probably in the 3rd quarter by looking at the tendline above.

I want to stress that technical analysis is about probability not about certainty. We all want to trade with odds in our favour. Many people think that technical analysis is a hindsight theory, you only see it after it had occured. However, if you incorporate cycle analysis into your analysis, you may even forecast the future price trend with certain accuracy.

I hope this article will give you a good picture of the general price trend of the crude palm oil, for individual counters, you may read up the analyst reports from various research houses. Generally, plantation counters with younger aged palm oil trees (below 20 years) will generate higher yield. In addition, land bank is also an important factor to consider as it can be a great potential boost to the balance sheet should plantation companies revalue their lands. Finally, look not only the Malaysian plantation counters, but also the Singapore listed plantation stocks as well.