Many of us would probably have heard a lot about Palm Oil recently and how it is a good trade to be in. Yet many fund managers will tell you about how little people actually know how to decipher the data from the local palm oil industry.
Palm oil is now the second most important commodity in Malaysia after crude oil. Being the largest producer of crude palm oil up until last year (and overtaken by Indonesia), it still retains the position of the most efficient palm oil producer and better quality product.
One reason being the establishment of a palm oil board like MPOB (Malaysian Palm Oil Board) which oversees the running of the local palm oil industry. It enforces many regulations within the industry right from how the fruits should be harvested (only matured fruits) to the quality of CPO being produced by oil mill to the final product by refinery.
Palm oil has gain interests not least due to its high price which hovers around the RM3,000 mark per tonne of CPO. Fresh fruit bunch (which are fruits that are harvested from palm trees) are being priced around the RM600 mark. One reason for the low FFB price is due to the oligopolistic nature of the oil mill which determines how much FFB should be paid. Another reason is that most oil mill had went into medium term contract of how much their CPO should be priced which is a lot lower than the current RM3,000 mark. So there are potential upswing to the FFB price in future.
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