Thursday, June 17, 2021

Where are we in the Palm Oil price cycle?

There are a lot of listed CPO producers in Malaysia, Singapore and Indonesia.

The CPO price is really volatile:

The latest peak is probably caused covid-19 supply disruptions, and is probably temporary.

Where are we in the commodity price cycle?


I don't think we can predict demand in the next few years.  There's too many moving parts:
We are better off looking at supply.


Palm Oil can only be grown at plus or minus 10 degrees from the equator.  In 2018, Indonesia supplied 56%, by far the most.  Malaysia supplied 28% with the remaining 16% from other Asian, African or South American countries.

The long term factors affecting supply are the number of hectares planted and the age of the trees.  The trees start producing 30 months after being planted, and reach peak yield at 7-13 years.  Production slowly declines since then:

Source: Palm Oil World

This December 2020 CPOPC report explains supply well:

Other figures corroborate this: Malaysian Palm Oil production has been flat for the past 5 years, while Indonesia's has been rising:

Source: Indexmundi (MsiaIndon)

In summary:
  • Malaysian CPO production has been flat, while Indonesia's growth has slowed (though is still currently growing enough to meet demand).  
  • If both Malaysia and Indonesia catch-up in replanting new trees, it would temporarily remove around 2.6m tonnes (estimated 3.5% of world production).  I guess it would take 4-5 years for production to recover from this, after which it starts exceeding today's numbers.
  • El-Nina has unpredictable short term effects on prices.  It may increase or decrease palm oil production, and affect soybean production (substitute for palm oil) in Latin America.
I would say that 2019/20 may have been the bottom of the cycle, but its not clear.  We did not see the type of demand destruction typically associated with the bottom of commodity markets.  But we did see some curtailing of growth.

If we do get a CPO boom, expect supply to catch up with demand in 3-6 years time.

Tuesday, June 15, 2021

Bought Uranium Stocks

Been looking for a chance to buy Uranium producers.  For the inevitable uranium bull market.  Was waiting for a market correction, but this news ("Chinese nuclear plant 'performance issue' reported by its French joint operator") hammered Uranium stocks last night.

Decided to take the plunge and buy a 3% position.  For something this risky, its gotta be a small enough position so that it doesn't hurt too much if it halves.   Otherwise I can't stick with it.  This is a "buy and forget" trade.  I want to wake up a few years from now and find we're in a Uranium bubble.

Theres only 2 publicly listed Uranium companies currently producing:

  • Kazatomprom - the world's lowest cost producer in Kazakhstan (LSE:KAP).  Bought 364 GDRs @ USD 31 each. 
  • Cameco - a Canadian mid-cost producer (TSE:CCO).  Bought 570 shares @ 23.83 each

Its risky.  Short term, the knife can keep falling, even if the fears turns out to be false.  After rising so far, these stocks may need a few more more days to shake out weak hands.  Long term, they can go up 3 or 4X if a real Uranium bull market occurs, like in 2007.  They can also drop by 2/3rd if the worst turns out to be true and we get another Fukushima.

(Edit July 2021): Realised Cameco is a mistake, sold it off at a small loss.  Its a barely profitable company, not one that I want to hold when I may have to wait years for a recovery. Sold it off at a tiny loss.