The effect of forward trade in some listed Oil Palm companies

The yield or fresh fruit bunches production per hectare has slowly increased from 17.1 tons in 1987 to 20.18 tons in 2008. The optimum production is from 23.35 tons per hectare in 1994 to 29.6 in 2008 by United Plantations. The graph illustrates the superior performance of the top three listed Palm oil producers in the country compared with the norm of the industry.

Obviously the returns per hectare increased in tandem. The recent price appreciation of the commodities is subsequent to the increase demands of BRIC (Brazil, Russia, India and China) and the USD shrinkage from the recent Quantitive easing in the USA. in response to the recent crisis.

The average selling price of crude palm oil (CPO) is a major determinant of profitability of the planter. Many major plantations in the country hedge their positions with forward selling of their produce. Their intentions are clear to sell at the best possible price in all prevailing conditions. Unfortunately some oil palm based prominent listed companies had failed to mimic the average selling price of the Industry as reported and recorded by Malaysian Palm Oil Board. The performance of the listed company (UP) failed miserably during the 3 recent crisis – Teiquila Mexican crisis in 1994-1995; Tomyam banking and financial crisis in 1997-1998 and the Subprime and CDO crisis in 2007-2009.

For United Plantations the loss is illustrated in the graph for Crude Palm Oil and Palm Kernel Oil.

Translated into loss of earnings this can be very significant as illustrated in the graphs below

For Crude Palm Oil

For Palm Kernel Oil

The data of the results in table.

The lost in CPO sales amounted to RM326millions and RM28.7million for Palm Kernal Oil over the period of 1992-2009. Combined their effects on the profit before tax and the gross earnings per share is not negligible as illustrated below.


The effect on the gross earnings per share over the years is RM1.88, a not insignificant amount.


Trading is a zero sum game. There is an opportunity of gain as well as a risk of loss. The advantage belongs to the paid professional. Unfortunately this is questionable here.
Past performance is not indicative of future outcome. Ironically the results were repetitive over the years.

Dreams postponed......

For many of us saving for retirement is a daunting and difficult task, even during the good times of the 90's. Then, there were so many distractions and people contesting for the earnings we take home.

Today after surviving the PIGS soverign crisis, the scenario has changed dramatically and for the worst. It is now more difficult to make ends meet. Many of us in the mid 50's who once thought they were secured are now forced to delay the retirement plans. More troubling are those who have retired or are going to mandatory retirement, they will have to work to break even. Since the financial and banking crisis of the 1998, signs started to emerge. Our economic tiger is whimpering like a kitten, the roar is not surprisingly absent.

Retirement now seems to be almost a luxury beyond the reach of the normal workers in this country.

Today the interest from our savings is very low. The interest rates have shranked dramatically from an average of 7.5% to less than 3% currently.


Over the last decade the yeilds from the goverment bonds decreased drastically from an average of 7.5% toless than 3%; so too is the interest declared by KWSP. All these has negatively impacted the growth of savings. This is not expected to change soon.

The equity or stock market performance is insipid, but volatile. To invest and hold Malaysian stocks over the last 15 years one will tend to underperform. The only way to grow the retirement egg in the local equity market is to trade.

One need RM3500 a month to retire today to maintain the average life style of the family. Assuming 300 months of retirement survival, the egg nest has to be RM700,000.

Notice the inflation? and the subsidy? This will negatively impact the people living here in Malaysia today.

Inflation will eat into our purchasing power and the future prices translated into contant values will significantly shrink our purchasing power and impact our life style. The RM3500 will be just RM1965.

The graph below illustrates the impact of low interest environment and inflation on the purchasing power or the retirees.

Unsurprising economic downturn will have a negatively impact on savings both from the amount saved and the investment returns. Yes, it is a severe migraine for many of us, for some it is intractible. Unless we plan well, many Malaysians will have to eat dog food, for retirement.

Subsidies, gambling and the budget

We Malaysians are an extremely lucky group. Our living expenses are subsidised heavily by the generous Goverment ( of course with the taxes collected ). This amount is by no means small. It reaches a peak of more then 35 billion Ringgit in 2008 and about 18.6 billion ringgit last year.

The goverment said it cannot continue to be that generous; unfortunately for us it is true. It is having problems balancing the budget. Even during the many years of positive economic growth the budget was in deficit; ironically it is claimed to be a norm for many nations. The goverment has to borrow money to spend and to repay or prepay the interests and debts. The revenue is barely enough to pay for the operating expenditure today ( graph below ); and will be insufficient in the not too distant future. Clearly there is just not enough for development or capital investment. Over the last decade it has borrow money locally from the EPF, banks, and you; payment is simple -keep the interest low and continue to print money. External borrowings are not cheap and the hungry wolves are not easy to pacify when threatened with default. Remember the bitter lesson of the infamous 'Tomyam crisis' of the 1998?

We were growing spectacularly before, we were deluded to think we could continue to; unfortunately growth today is stunted. Some said we are staring at a failed economy, a minister even claimed the impending possibility of catching the Sovereign crisis -'PIGS' disease made famous in Europe recently. With limited financing, it was very creative then, and still is to expedite implementation of projects with a rent based system. How else can we generate enough excessive electricity after 1992 without the presence of the Independent Power Poducers -IPP's and have good but expensive tolled roads without PLUS. Never mind the cost, the Malaysian people can stomach it; we are known to have frequent attacks of amnesia.

The Malaysian goverment employs more than a million Malaysians. It will have to continue, it need to employ those unemployeable (undesirable outcome of the local Education system) or who cannot find one in the private sector. Its funding needs for salaries, services, supplies and pensions will continue to grow and grow faster than the gross domestic product (GDP) as is the case for the last decade. This poor productivity is certainly not tenable. Overstaffing and underworked personnel is a big negative in work ethics. Leakages are of course common as seen in most third world countries. The Auditor-general has been working overtime; unfortunately the malaise and inefficiency in procurement of services and goods will continue tomorrow as it was before and is today.

The Kertih and other oilfields are fast running dry, unfortunately with increasing demand for oil; we will soon become a net importer pretty soon, sooner than expected. This will impact revenues from oil. Personal income tax is growing too slow and will be too low to compensate for the subsidies. Gaming tax is a sure way and it will be foolish not to let them gamblers have their fun. NFO, pools and casinos are good, and now with sports betting it is complete.

Now for the soon to be consumption tax.....

Joy.....We will soon live in a world with a real cost of living...

Lets continue to gamble, waste and splurge.

Its easier and more fun.

There is no place to hide, the sarong has been lifted.