2023 agricultural commodities projection: Fitch predicts CPO to be cheaper

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - Proyeksi Komoditas Pertanian 2023: Fitch Ramal CPO Lebih Murah

29 December 2022

By: Sri Mas Sari

Jakarta - Fitch Ratings predicts that crude palm oil spot price can reach an average of US$850 per tonne next year, which is far below the US$1,175 per tonne this year.

In the latest report issued on Tuesday (27/12), benchmark CPO price has recovered above US$850 per tonne in the fourth quarter of 2022, while the price at the end of September was at US$700 per tonne.

Fitch predicts that the price will improve in the first half of 2023 to surpass US$900 per tonne. The international credit rating institution stated that the growth prospect of palm oil demand was supported by Indonesia’s decision in December 2022 to increase palm oil portion in biodiesel to 35%.

However, Fitch sees that supply will increase starting from the second quarter of 2023, which will cause the price to go down in the second half of next year.

“The availability of foreign workers in Malaysia is improving, and we predict that the situation will go back to normal in the middle of 2023,” Fitch wrote in the Asian Crude Palm Oil Watch 4Q22 report.

Fitch also predicts healthy soil humidity and fewer hindrances related to flooding will support harvest.

Moreover, CPO price in Malaysia’s futures market until 28 December 2022 reached an average of 4,638.8 ringgit (US$1,059.1) per tonne, quoted from Bloomberg’s data.

The vegetable oil slightly declined after logging the highest surge in five months. China’s step to fully open its borders raises an expectation that demand from one of the main global vegetable oil consumers will increase significantly.

CPO contract for March 2023 delivery weakened by 0.2% to 4,090 ringgit per tonne. The price surged by more than 7% the previous day.

Quoted by Bloomberg on Wednesday (28/12), Pelindung Bestari Bhd Director Paramalingam Supramaniam, a broker based in Selangor, said that there were many positive factors, including China’s decision to revise its Covid policy, which had triggered a large-scale short covering.

The palm oil market was leveraged after China said it would no longer quarantine incoming tourists starting from 8 January, placing the country on the right track to get out of the mandatory isolation that has been implemented for three years under the Zero Covid policy that destroyed the economy and triggered public discontent.

FFB decreasing

From Pekanbaru, Riau Province Plantation Agency mentioned that the price of oil palm fresh fruit bunch (FFB) from 28 December 2022 to 3 January 2022 decreased for every oil palm age group.

Riau Plantation Agency Head Zulfadli said that the most significant decrease occurred in the 10 to 20 years age group by Rp13.41 per kg from the price last week. Hence, FFB purchase price from farmers for the next week will reach Rp2,621.52 per kg.

He said that the factors that decreased FFB price this period was the weakening of CPO and kernel selling prices from companies providing the data source.

PTPN V Sei Buatan sells CPO for Rp11,598.6 per kg or decreased by Rp6.4 per kg from the price last week. PTPN V Sei Tapung sells CPO for Rp11,598.6 per kg, which decreased by Rp6.4 per kg.

Meanwhile, for kernel selling price, PT Buana Wiralestari Mas and PT Ramajaya Pramukti are selling for Rp5,760 per kg this week. PT Meganusa Intisawit is selling kernels for Rp5,432 per kg this week. In contrast, PT Eka Dura Indonesia is selling kernels for Rp5,900.9 per kg, which increased by Rp67.57 per kg from the price last week. PT Kimia Tirta Utama is selling for Rp5,909.91 per kg, which increased by Rp76.58 per kg.

Zulfadli added that the FFB pricing governance system in Riau Province has been improving.

“The pricing governance improvement is a serious effort from all stakeholders supported by Riau Provincial Government and Riau High Prosecutors’ Office. This mutual commitment will increase the revenue of farmers that boils down to public welfare,” he revealed.

In other developments, crude sugar price is also experiencing its largest decline in 17 months, in line with the expectation of increased supply from the main exporter, Brazil, as trade volume remains low after the holidays.

Bloomberg reported that sugarcane productivity increased in Brazil compared to the forecast, the national supply company, Conab, stated in their report on Tuesday. Sellers are also reacting to the potential extension of the fuel policy that will negatively affect sugarcane ethanol in Brazil. Tax deduction is making biofuel less competitive compared to gasoline at the start of this year, which encourages factories to produce more of the sweetener.

“At this point, factories will most likely be fully locked in sugar production,” Michael McDougall, Paragon Global Markets Executive Director, said in his notes.

The most active futures contract for crude sugar declined by 3.15% to 20.32 cents US dollar per pound in New York, which is the largest decline since July 2021. That is the first decline after six consecutive days of increase. The commodity is still increasing by more than 7% this year.

Regarding other soft commodities, arabica coffee declined by 2.9% and orange juice by 0.3%.