The rise of CPO prices would also allow oil palm firms to have a stronger cashflow position, says expert

By ALIFAH ZAINUDDIN / Pic By TMR

The rising crude palm oil (CPO) prices and falling stockpiles should allay some of the struggles faced by smallholders, aided by the federal government’s effort to eradicate middlemen in payments to settlers under the Federal Land Development Authority (Felda).

The recovery in CPO prices is expected to be a boon to some 650,000 smallholders in the country — a majority of which are under the federal land scheme — who have struggled to cope due to depressed prices, late allowance payments and higher living costs.

CPO prices have moved up to RM2,153 per tonne to date, rising over 25% from three-year lows recorded in November last year.

While it is still a long shot from the RM2,486-per-tonne mark achieved at the beginning of 2018, a decline in palm oil stocks to three million tonnes in January 2019 from 3.22 million tonnes in December 2018 could promise further increase in prices.

According to Farmer’s Organisation Authority chairman Mazlan Aliman, although CPO prices have improved in the last few months, it has not reached a stable level.

“If you compare the price against our living costs, it is still unbalanced. We know that commodity prices are subjected to constant fluctuation.

“Hence, the government’s move to create other agricultural activities to reduce the dependency on oil palm must be hastened,” he told The Malaysian Reserve.

Felda’s huge net losses and high debt levels have restrained its ability to make payments to nearly 38,000 settlers. It is said that some RM500 million is needed to finance the allowances, given the large number of settlers involved in its replanting programme.

Mazlan said a government pilot project in Felda Sungai Tengi in Hulu Selangor would allow settlers under the ailing agency to plant cash crops, such as fruits and vegetables, that would supplement their income.

Meanwhile, Sunway University Business School economist Prof Dr Yeah Kim Leng said the rise of CPO prices would also allow oil palm companies to have a stronger cashflow position.

A check on Bloomberg showed that the top 10 plantation counters have recovered a total of RM6.98 billion in market capitalisation since the start of this year.

Among the biggest gainers are United Plantations Bhd, which is up 4.2% or RM1.06 to date to RM26.56, Sarawak Oil Palms Bhd (+28.6% or 60 sen to RM2.70) and Genting Plantations Bhd (+4.5% or 44 sen to RM10.30).

Malaysia, the world’s second-largest producer of palm oil, had witnessed exports of the commodity and its related products posting stronger figures in January.

The favourable outcome will likely continue throughout the year as trade tensions between the US and China would force Beijing to reduce imports of soybeans from the US.

Malaysia’s high inventory level could also be reduced further to 2.5 million tonnes as the deadline for the B10 biodiesel mandate looms. The B10 mandate, which requires petrol stations to provide B10 biodiesel by February 2019, is estimated to consume about 761,000 tonnes of palm oil annually.