Trip up to KL

I took a trip up to KL over the last weekend to meet up with some of my friends for a weekend getaway. On the way up via the North South Highway via the Second Link, it was good seeing vast open spaces compared to the urban jungle that we see in Singapore. More importantly, it was good looking out of the window to vast amount of palm plantations which got me looking, thinking and ultimately digging further into information about the palm oil industry.

(1) Mature and Immature

Sounds really easy at first, where mature palms are those that are able to produce palm fruits and immature ones are those that have not started producing fruits. Travelling along the highway, what I saw was the really new plantations, where you see the palm leaves just sprouting; medium height plantations, where you could see a short trunk; and the older palms, where it looks exactly like a tree.

So when do palm trees produce their highest yield? That was an immediate concern that came to my mind. Firms may classify their palms as mature, however it may be near the tail end or past the peak production age. What I found out was palm oil yields were highest were from the 6th year to the 12th year. After that, the yields will start decreasing.

(2) What happens after death?

I saw a few plantations where there were withering trees, or just clearings. A few questions came to my mind.

First, what is the life of the palm tree, and given that yields decline after 12 years of age? In the article "The Optimal Age of Palm Oil Replanting", they have stated that the optimal age of replanting based on marginal revenues would be of 30 years of age, when after that the palm trees get too tall, and yields will be too low to support the labour costs. However, I have my doubts on the viability of replanting trees when they reach 30 considering that yields may be too low to sustain the total sum of all costs (including SG&A costs).

Second, how long will it take before the land is viable to replace palm trees? Would they do better to replant on uncultivated land or replant on land that has been planted on before? Thus far, I am unable to determine the answer to the question, and I am currently finding more information on this topic. However, one thing I noted was if it ever came to this situation, chances are the company does not have a large enough land bank, which may be detrimental to future expansion plans.

(3) Wide Open Spaces

One thing I noticed is that wherever there was wide open spaces, there were palm trees. From an industry point of view, it would mean that there will be ample supply. However, this may cause prices to be depressed in the situation where supply exceeds demand. Interestingly, with the current weather patterns said to cause yields to be lower, the issue of supply outstripping demand has not been a big issue to deal with as yet. In the future, there is a need to consider this supply demand balance.

Later today, I will be attending FR's AGM, and I hope it would be a good experience (especially with the food). There will be a summary of the AGM, and a review of property prices coming up in the next week or two.