Here's the impact of higher palm oil stocks on Singapore's agribusiness firms

Stocks to increase 6% by end-October.

According to CIMB, Malaysia's palm oil stocks rose 7% mom to 1.78m tonnes as at end-Sept 13 due to seasonal factors. However, the stock level was 5% below CIMB's and 7 % below consensus forecasts as stronger-than-expected exports and domestic consumption offset the rise in production. 

Here's more from CIMB:

We expect the output to rise 4% mom to 1.99m tonnes in Oct 13, driven mainly by seasonal rise in FFB yields.

Palm oil exports are expected to grow at a slower rate of 6%, but are likely to be supported by the buying ahead of the Deepavali celebrations as well as stronger biodiesel usage. We project palm oil stocks to increase 6% mom to 1.88m tonnes by end-Oct.

We project CPO price to trade around RM2,200-2,500 per tonne
Average CPO price gained by only 1% yoy to RM2,355 per tonne in Sep 13 due to concerns over the seasonally higher palm oil supplies.

For 9M13, the average CPO price of RM2,323 per tonne was 25% below last year's average of RM3,083 due to the higher stocks at the beginning of 2013 and rising global edible oil supplies.

We expect CPO prices to trade sideways with some downside bias during the peak production period that starts in Sep-Nov.

But we believe the price decline will be more moderate compared to last year due to 1) lower palm oil stock levels, 2) stronger demand from China, and 3) more supportive biodiesel mandates from Malaysia and Indonesia. In the near term, we expect CPO price to trade in the range of RM2,200-2,500 per tonne.

Valuation and recommendation
We continue to rate the sector at Neutral as we feel that the market has already priced in some recovery in CPO prices.

We remain selective in our top picks comprising First Resources, Wilmar, Astra Agro and IOI Corporation. We like First Resources for its well-managed estates and attractive valuations.

Wilmar remains one of our top picks as we expect the group's earnings to benefit from higher palm oil sales volumes and improved crushing margins.

We also like IOI Corp in Malaysia as we think that investors have not fully priced in the potential of its property business, which will be demerged and listed in 4Q13.

Astra Agro is our top pick among the Indonesian-listed planters that are set to benefit from the weaker rupiah through better domestic CPO prices.