Influences upon palm oil production costs

Transcription

1 Influences upon palm oil production costs Presentation to the Fedepalma Congress, Cartagena de lndias, September 2015 by Dr James Fry, Chairman, LMC International LMC International,

2 The key factors influencing production costs I am going to try to cover a lot of ground today, since the influences on production costs are so many. Among the more important I will review today are: Trends in yields and the impact of palm age profiles Labour productivity and fertiliser consumption Production costs, with and without by-product credits The recent sharp swings in exchange rates LMC International,

3 Trends in palm oil yields per hectare LMC International,

4 You will be familiar with the yield of oil palms over their life cycle. We apply this profile to estimate average yields over the life time of all palm areas. 120% 100% % of average yield 80% 60% 40% 20% 0% Year after planting LMC International,

5 The yields over the lifetime of oil palm plantings we call adjusted yields. This adjustment raises Indonesian yields more than Malaysian yields. 5.0 Tonnes of CPO per mature hectare Actual Malaysia Adjusted Malaysia Actual Indonesia Adjusted Indonesia LMC International,

6 The impact of the adjustments is revealed if we compare actual vs adjusted yields in high yielding Sabah and low yielding Sarawak in Malaysia. 5.0 Tonnes of CPO per mature hectare Actual Sabah Actual Sarawak Adjusted Sabah Adjusted Sarawak LMC International,

7 Yield adjustments are highest when a region has a high share of young trees. Colombia has a much higher immature share than other important areas. 35% 30% Immature % 25% 20% 15% 10% Colombia Indonesia Malaysia Sarawak LMC International,

8 Here I have made a brave attempt to guess how yield adjustments for age would affect the CPO yield per mature hectare in Colombia. 4.5 Tonnes of CPO per mature hectare Actual Colombia Actual Sarawak Adjusted Colombia Adjusted Sarawak LMC International,

9 Be careful when comparing oil palm yields Recorded CPO yields per mature hectare are highest in Malaysia, followed by Indonesia and Colombia. In all three countries, the recorded yields have been flat or even declining since However, the recorded yields fail to take account of the implications of the wave of new plantings made from 2007, which reduced the average age of mature areas. For this reason, we at LMC now build up age profiles of oil palm areas by country, region or company to be able to estimate their underlying age-adjusted yields and deduce the impact on their production costs. The next slide illustrates this for a big plantation group. LMC International,

10 This company s CPO yield in 2014 was 4.7 mt/ha. and its age-adjusted yield 4.4 mt/ha. Applying the adjusted yield, its cost rose from $267 to $290/mt Variable production cost per tonne of CPO Age adjusted CPO yield (mt/ha) 0 Normal Age adjusted 3.5 Variable cost CPO Yield LMC International,

11 Continuing consideration of production costs LMC International,

12 Oil palm records much lower production costs per tonne of oil than annual oilseeds... but only before one allows for by-product credits. Oil production costs before credits, $/tonne 1,400 1,200 1, Soybean Rapeseed Sunflower Palm LMC International,

13 Soybean processors, in particular, have been enjoying high credits from the sale of their meal output. Oil palm credits from kernel are smaller. 1,600 Meal and PK credits, US$ per tonne of oil 1,400 1,200 1, Soybean Rapeseed Sunflower Palm LMC International,

14 If you deduct by-product credits from production costs of oils (where land values are not included in field costs), soybean oil costs are now negative! Oil production costs, net of credits, $/tonne Soybean Rapeseed Sunflower Palm LMC International,

15 Real CPO production costs have risen with higher input costs, notably labour. Costs in in Malaysia and Colombia were above Real CPO production costs, US$ per tonne Colombia Indonesia Malaysia LMC International,

16 The detailed data from the US reveal how much harder it has become for its soybean farmers to reduce their production inputs further. 6% Annual change in elements of US field costs 4% 2% 0% -2% -4% -6% -8% Fertliser Chemicals Fuel & Energy Labour Total / / / LMC International,

17 Lowering production costs has become difficult The annual oilseed crops have enjoyed a bonanza as a result of high by-product credits from the sale of meal, which are much more important per tonne of oil than oil palm s credits from the sale of palm kernel. Trends in production costs, before the deduction of byproduct credits, seem to be pointing slowly upwards. Maybe this is due to complacency from high prices. Input price rises have made things difficult for oil palm producers, with wages rising quite rapidly in South East Asia, for example. I now turn to consider the impact of these inputs. LMC International,

18 Labour and fertilisers, the major palm inputs LMC International,

19 Malaysian and Indonesian costs of employing general field workers in US$ in 2014 were 320% and 380%, respectively, of their 2001 levels. General labour daily cost to employer, US$ Malaysia Indonesia LMC International,

20 In Malaysia, this has prompted an increase in the mature area per worker in recent years. However, part of this rise has been due to labour shortages. 12 Malaysia, total mature hectares/worker LMC International,

21 Here I contrast the total area (both mature and immature) per worker in Malaysia and on estates in Indonesia, where the trend is at best flat Hectares per worker Indonesia Malaysia LMC International,

22 Fertiliser is also a crucial input. Here I plot not the price of fertilisers, but the fertiliser-cpo price ratio. One can understand why its use is now falling. Fertiliser/CPO Price Ratio =100% 350% 300% 250% 200% 150% 100% 50% 0% Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 LMC International,

23 The impact of cutbacks in fertiliser use in reaction to high fertiliser prices may be seen in the yearon-year CPO growth cycle in Malaysia. 40% Yr-on-yr Malaysia output change 30% 20% 10% 0% -10% -20% LMC International,

24 Spending on inputs is set to fall significantly The reduction in fertiliser use in response to the failure of fertiliser companies to reduce their prices will undoubtedly cut cash costs of CPO production and will hit output growth next year, compounding the effect of drought on oil palm yields. In the case of labour costs, there have been two new developments: cutbacks in field maintenance and in the frequency of harvesting rounds; and (totally outside the control of the oil palm sector) the sharp devaluations of the currencies in many oil palm producing countries. I conclude by examining the effect of currency turmoil. LMC International,

25 Exchange rate fluctuations LMC International,

26 Most oil palm producing countries have seen their exchange rates (local currency/us$) soar since Ecuador has been tied to the US$. 200 Exchange rate index, average 2012 = Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Malaysia Indonesia Colombia Brazil Ecuador LMC International,

27 Devaluations have softened the impact of the fall in the world CPO price, when it is expressed in local currencies. Local CPO price index, average 2012 = Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Malaysia Indonesia Colombia Brazil Ecuador LMC International,

28 I end with the consumer view, showing how CPO prices have moved in local currency in importing countries. (Brent is a proxy for crude oil exporters) 160 Exchange rate index, average 2012 = Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 US EU India Brent LMC International,

29 Input cost reductions may help many palm producers to manage current low prices. It seems highly unlikely that fertiliser prices will be able to withstand the pressures they face from falling sales, not just from oil palm producers but also from growers of annual crops whose prices have fallen back. For those countries that have devalued substantially against the US$, these devaluations, until they feed through to inflation and pressure for higher wages, will lessen the immediate impact of low CPO prices. Whatever happens, CPO production will respond in 2016 and help to raise CPO prices. However, a word of caution: don t forget that higher prices will affect demand, both if soy oil becomes competitive and if biodiesel demand is reduced. LMC International,

30 Oxford 4 th Floor, Clarendon House 52 Cornmarket Street Oxford OX1 3HJ UK T F info@lmc.co.uk New York 1841 Broadway New York, NY USA T +1 (212) F +1 (212) info@lmc-ny.com Kuala Lumpur B-03-19, Empire Soho Empire Subang Jalan SS16/1, SS Subang Jaya Selangor Darul Ehsan Malaysia T info@lmc-kl.com Singapore 16 Collyer Quay #21-00 Singapore Singapore Tel: info@lmc-sg.com LMC International, 2015 All rights reserved This presentation and its contents are to be held confidential by the client, and are not to be disclosed, in whole or in part, in any manner, to a third party without the prior written consent of LMC International. While LMC has endeavoured to ensure the accuracy of the data, estimates and forecasts contained in this presentation, any decisions based on them (including those involving investment and planning) are at the client s own risk. LMC International can accept no liability regarding information analysis and forecasts contained in this presentation. LMC International,

31 New from LMC Oils Price View a monthly report in PowerPoint LMC s monthly price forecas5ng service presents: Ø Price forecasts six months ahead for each of the major vegetable oils, including the lauric oils, as well as refined palm products and also tallow. Suppor7ng analysis that includes: Key price developments that month Insights from key global markets and sectors What you get: The LMC report this is supplied as a PowerPoint presenta5on. Excel price model that allows you to make your own price forecasts. Please contact Chen Lan at Lchen@Lmc.co.uk or for more details. LMC International,