This was after its analysis of independent oilseed, oils and meals forecast provider Oil World’s forecast of higher edible oil production in the 2009/2010 season, where palm and soybean oils are expected to contribute to 46% and 29% respectively of the 6.3-million tonne increase in production.

Assuming favourable weather conditions and recovery in yields, Oil World sees the production of 10 oilseeds at a record 418 million tonnes, up 6.8% or 26.5 million tonnes year-on-year, whereas world production of 17 oils and fats is forecast at 168.9 million tonnes, up 6.3 million tonnes or 3.9%. On the other hand, world consumption of the 10 oilseeds are expected to recover from the depressed level in 2008/09 to 410.6 million tonnes but at a slower pace than production, resulting in an increase of 7.4 million tonnes in oilseed stocks to 70.6 million tonnes.

“Generally lower oilseed and product prices in the second half of the 2009/10 season is not inconsistent with our CPO price assumption of RM2,300 per tonne in 2010 and 2011, which is also predicated on a more sustained global economic recovery in 2010,” Affin said in a note yesterday.

The research house also kept its 2009 CPO price assumption of RM2,200 per tonne, which took into account lower prices in 1Q09.

In Jan/Dec 2010, Malaysian and Indonesian CPO production are forecast at 18.4 million tonnes (up 0.6 million) and 22.7 million tonnes (up 2.1million), respectively. Global harvested area for soybeans is expected to increase by three million hectares to 100.3 million, with the USA and South America accounting for bulk of the increase.

Among planters, Affin has a buy recommendation on Sarawak Plantations Bhd with a RM2.49 target price. For Asiatic Bhd (RM6.03 target price), Kuala Lumpur Kepong Bhd (RM12.70 target price) and Sime Darby Bhd (RM7.10), Affin has an add recommendation, which meant it expected the stock to generate up to 15% total return over 12 months.

On the other hand, Affin has a reduce stance on Hap Seng Plantations Bhd (RM2.04 target price), IJM Plantations Bhd (RM2.49 target price) and IOI Corp Bhd (RM4.14 target price), expecting total returns for the trio to be between 0% and -15% over 12 months.

At closing bell yesterday, Sarawak Plantations was at RM2.07, Asiatic at RM5.60, KLK at RM12, Sime Darby at RM6.85, Hap Seng Plantations at RM2.13, IJM Plantations at RM2.70 while IOI Corp was at RM4.60.

This article appeared in The Edge Financial Daily, June 18, 2009.