DBS Vickers says strong crude palm oil prices are sustainable after December production fell a steeper-than-expected 16% on month. The house expects January-February production to fall further due to the lagged impact of a severe drought in the same period a year earlier. 

DBS adds, if Argentina’s soybean production outlook deteriorates, CPO prices could strengthen further. But the house says CPO prices look technically stretched and could consolidate recent months’ gains first, noting March CPO futures are +56% from September’s low of MYR2,500/ton at MYR3,900/ton last week. 

 

“The current pullback to MYR3,730/ton (Monday’s close) can signal the start of a consolidation phase that retraces 23.6% to 38.2% of recent gains. If true, expect a pullback in the CPO futures to about MYR3,470/ton in the week(s) ahead.” 

 

The house recommends investors focus on laggards, such as Indofood Agri (5JS.SG), rated Buy with a $3.30 target. IndoAgri +2.6% at $2.81 and Kencana Agri (F9M.SG) is +3.4% at $1.53. Golden Agri-Resources (E5H.SG) is +1.3% at $0.785 in huge volume of 120 million shares.