I will drop some hints on recent auctions. Land in IDR which is going for around RM50k per acre would otherwise fetch more than RM100k in real market. Be prepared to fight out for it.

Factory in a good location going for only RM200k which would normally fetch RM350k.

Previously one of the auctions I have went to attracted more than 150 bidders. At the end of the day, the auction was called off for fear of minor riot as there were too many bidders meaning that there might be something wrong with the reserve price. The ADO call off the auction rightfully.

So if you have an eagle eyes, look through newspaper on auction notices.

Tags: auctions, galore, properties, IDR, factory, reserve, price

it was a jolly good time as people that wanted to sell would sell at a fair market value price. It is not the case now where people inflat the price as high as possible. You won’t believe if I said the cheapest land in Johor now is at least RM50,000 per acre even in the deepest of jungle.

So when in recent times, when friends call me to tell me that CPO has finally came down, I said it is a good correction. It doesn’t affect me much as I believe as long as the CPO price is above RM1,600, I will be okay. It is a good correction in that people who are new the industry will think twice about coming in.

In the year 2000, when CPO price was hovering around RM1,000 per metric tonne, most estates were on the brink of bankcruptcy. It was an unsustainable price. Now with CPO peaking at over RM4,500 even PhD holders are coming into the industry. These people come in without proper cost planning and suddenly everything that is associated with palm oil plantation increased in costs. So maybe, in my personal opinion, this correction in price is a good thing.

Editor Note: There was a reader who wrote in to me to ask me to separate this palm oil news and discussion into another blog. As I am already maintaining so many blogs, I don’t know if that will be a good idea. Can more people give me comments on that?

Tags: palm, oil, plantation, cpo, price, industry, correction

I bet it will think how desperate George is and kill off the market. I can sense the end of the world coming. Why do we have looneys running one the largest economy in the world?

Come, let’s all pray for a less dangerous tomorrow.

If you have seen the interview on Channel News Asia with Tony Fernandez, the CEO of Air Asia, you will notice how he would tell you without reservation that Singapore government had tried to stop him from servicing Singaporeans from Singapore’s soil. Right from beginning they had refused to give him any rights to operate. When his indonesian subsidiary tried to fly in, Singapore government went all out to stop him by giving the excuse that they couldn’t finish the application on time. You believe that?

When he tried to service Singaporeans with buses from certain point in singapore ferrying them across the causeway to fly off, the government came in and deem the transportation illegal and hence the service was stopped. Is this because Singapore government knew their own budget airline is weak and needed more time to protect them from this ferocious budget giant known as Air Asia?

In terms of size Air Asia beats both the singapore budget carriers hands down. Its sheer size would mean that it has many services and would be an advantage in terms of connectivity. It has two other subsidiaries in Indonesia and Thailand meaning that within ASEAN, Air Asia is the largest budget carrier.

Tiger Airways, no matter how you want to perceive them, is more of a copy of Air Asia. Air Asia made no secrets that its business model is based on Ryan Air, a leading European budget carrier. With recent involvement of Richard Branson in Air Asia X, one cannot help but feel that it is a stamp of approval that Air Asia X will be likely to soar the sky even further.

When February 1st arrive, the winner it seems would be Air Asia rather than the other two as Air Asia would be the only one with connectivity to other parts of the world especially with their long haul budget airline, Air Asia X already in service. Tiger Airways and Jetstar do not offer anything more than what Air Asia offers. With further liberalisation due later in the year and with Air Asia X announcing more international routes, the scale would seem to tip in favour of the Malaysian carrier.

Will Singaporeans finally get a choice in budget travelling? Give it a year and the figures will show. Perhaps competiton has finally arrive in Singapore for budget travelling.

What is subprime? I asked many people this question and frankly most would stare at the next beautiful girl and conveniently missed my question. I mean, everyone had heard about this term but yet not many people actually knew the whole meaning behind it.

Prime basically means good. Sub prime means no good. So subprime loan means no good loans. These are loans which had been given to marginally financially able people. Meaning any tom, dick or mary can apply for the loan. Even if you had been blacklisted you can apply for subprime loans.

So why do financial instituition still loan these people? Because of the margin. You know by lending to fat4, you need to give good interest rates or I will go elsewhere. But for these subprime people, they have no choice. Most people would not loan them money. But for the instituition that does, they will take the loan no matter what the interest rates are.

So the blow out that we have seen recently are majority from USA. Where the people kept borrowing to the extent they could not pay and the bank will take over their properties. These would eventually lead to a fall in property prices which is eventually the start of a vicious cycle which would cause other loans (even the good ones) to fail.

Why? Because once this cycle start to roll, the interest rates will go up (theorectically). But because caucasians like USA are relatively smart (they asked us Malaysians to raise our interest rates during the financial crisis, only to have Mahathir to go against them and in fact REDUCE interest rates), and saw how Malaysia had done well with the previous methods of overcoming a crisis, and decided to deploy the same technique of reducing official interest rates (or at least maintaining them). This would actually be good IF you allow some to fail nonetheless.

But personally I got a feeling that this crisis is much bigger than anyone has ever thought. I mean you look at those big big financial instituition begging for money, you know something is not right. But don’t say it won’t affect you. Because you people worship all things american, so our economy is linked quite strongly to American economic health. They fall ill, we may die also. It is that contagious.

A recession in America would mean less purchasing power, would mean less purchases from factories around Malaysia, which would mean most Malaysians may not get their bonuses which affects their spending pattern which lastly would affect everything you do.

So beware! It may affect you.

FFB is traditionally dictated by palm oil mills who then decides on the FFB price by looking at their CPO futures contract price. Meaning it really depends on the market who bought forward futures for this commodity.

Interestingly, if you walk the market and the bankers know you are a palm oil man, they will be hovering within your radar every few minutes and within hand reach. Contrast this to 3 or 4 years ago when palm oil price was relatively stable but then without direction.

So the question which is on everyone’s lips, will this price remain?

Most analyst would predict a strong showing for the rest of 2008 but will not have significant upward trend. However, the price may not be sustained for medium term as more and more players come into the industry. Many came into the industry without really knowing much of the industry. This can be detrimental as palm oil industry is pretty much a cowboy industry where you will be con every step of the way unless you have hands on experience.

For a good 100 acre acreage you should be able to sustain an income level of RM500,000 per annum after deducting costs. And it goes up depending on your acreage and yields.

So are you one of them jumping into this industry?

Often, plantation owners will have to face the constantly rather difficult to manage workers. Problems would range from workers running away from plantation (due to different expectations), workers refusing to work to workers who would instigate others to give management problems

It can be said that if you know how to manage your workers well, you have a better success rate at managint the plantation as most other factors can be controlled, like fertilisers, killing weeds, etc.

Other issues which you need to look at is foreign workers application. The current system requires you to register with the local labour office who would then interview you to see how many workers you may apply for. Here’s where it gets a bit tricky. The rule of thumb should be one worker for every 20 acres but often most officers would exercise their own set of rules.

Once approved by labour office, you will then be directed to KHEDN (Kementerian Hal Ehwal Dalam Negeri) where they will further vet your application and give you a final approval. Although the supposedly guidelines is that if your plantation is less than 100 acres, you will be considered a small holder and hence pay a lower premium (which I think is RM360, correct me if I am wrong) and if you own more than 100 acres, you will pay a levy of RM540.

Once approved which normally takes no less than 4 months from your date of first application with the labour office.

Tags: Malaysia, palm, oil, human, resources, indonesian, levy, foreign, workers, KHEDN, labour, office

Then you need to consider the type of palm you intend to plan. One of the most popular type would be DXP whom I cannot remember who the initial producer is, probably one of the companies with the Sime Darby plantation group. Felda is also another popular choice. I would frankly advice people to not grow other types as these two types are proven to be quite effective in yields.

A rule of thumb that in general, people would attempt to yield as close to 30tonnes per hectare per year or around 1.2tonnes per acre per month. If you follow as closely to that doctrine, you will get around RM700 revenue per month per acre. This is base on a FFB (fresh fruit bunch) price of nearly RM600 (current price). So theorectically if you have a 100acre plantation it would give you a good income of RM70,000 per month on average. This is of course prior to costs.

I will leave costing to another day as costing would be a specialty in itself.

When a person asked me if it is worth investing their spare cash in the palm oil industry, I always ask them the question if they are willing to look after their plantation on a full time basis if needed. If the answer is negative, I would tend to advise them against an investment.

Contrary to popular believes, palm oil is a hands on industry. If you do not understand the process it is best to steer clear as the industry is filled with people who are out to “make a quick buck”. Pilferage is the biggest costs of the industry. I will not go into details on managing the available resources as that itself is a specialty.

Now to investment in land. There is a sarcity of land at the moment given the land rush experienced recently due to increase speculative activity. It is very rare to find palm oil land below the RM10,000 mark per acre.

If you hear people telling you about land in Sarawak for palm oil, you might as well as forget about it even if it is cheap. There are many issues regarding the Native Customary Rights (NCR) and its short lease. Plus there is no ready palm oil infrastructure there. Sabah may be a better alternative but yet the price is no longer cheap especially on the eastern side of the state. The western side do not produce as well as the east side. Pahang has pretty challenging terrains and its soil is not as fertile as most other states. Perak, Selangor and Johor are pretty good for cultivation but the price of land will set you back quite a bit.

The other question which one has to ask is how big is your appetite. It really depends on your budget and how much you want in return. Palm oil pays pretty good return if you manage your costs well. For those who wants a second opinion on their investment, drop me a line in the comment, and I will calculate and give you the pros and cons of your investments.

Tags: palm, oil, sarawak, sabah, johor, perak, selangor, pahang, investment, returns, fertile

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.