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.