- The palm oil ban in Indonesia will increase prices for alternatives including soybean oil and canola oil.
- Archer-Daniels Midland (ADM) will benefit as soybean oil gets a boost from Indonesia’s palm oil export bans.
- Bunge (BG) is attractive for many of the same reasons as ADM.
- An ETF like Teucrium Soybean Fund (SOYB) is a smart way to play rising commodity futures.
Indonesia’s palm oil export ban is far-reaching and fast-evolving. The chief economic minister of the Southeast Asian nation first announced that its export ban would cover only refined, bleached and deodorized palm olein.
Just days later the nation changed course, widening that ban to include crude and refined palm oil as well. The initial ban was a government response to unrest caused by rising cooking oil prices. A liter of bulk cooking oil costs between 19,000 to 20,000 IDR, the equivalent of $1.31 to $1.38. Indonesia has announced that the ban will remain in place until the cost of a liter of bulk cooking oil reaches 14,000 IDR.
What that means is that the prices of all vegetable oils are set to rise due to the disruption, including soybean oil and canola oil. That implies that stocks in companies that trade heavily in these oils are set to soar. Let’s look at a few of those stocks here.
| ADM | Archer-Daniels Midland | $90.79 |
| BG | Bunge | $117.23 |
| SOYB | Teucrium Soybean Fund | $28.02 |
Archer-Daniels-Midland (ADM)
Archer-Daniels-Midland (NYSE:ADM) is one of the biggest agricultural firms there is. In 2021, the firm recorded $85 billion worth of sales. That represented a steep increase from the $64 billion worth of sales that the company recorded in 2020.
Even without the tailwinds from the palm oil export ban in Indonesia, Archer-Daniels-Midland is already proving that it has plenty of growth in store. In fact, analysts are already anticipating that Archer-Daniels-Midland’s revenues will reach $95 billion in 2022.
However, investors can reasonably assume that those revenues should rise higher as soybean oil and canola oil prices are set to rise.
In the first quarter, the company performed well in a market in which Canadian canola supplies were already strained. The company expected the tight market to lead to increasing demand for its products.
Now that Indonesia has banned palm oil exports it’s reasonable to expect that the demand for Archer-Daniels-Midland’s products we will rise even higher.
Bunge (BG)
For many of the reasons that Archer-Daniels-Midland is attractive to investors right now, so too is Bunge (NYSE:BG) stock. The St. Louis, Missouri firm engages in the supply and transport of commodities. In essence, the firm is a big agribusiness company that touches on crops, milling and specialty oils.
Early in April, Barron’s ran an article touting Bunge as a stock to buy based on rising soybean prices. On the one hand, prices for everything are soaring. Theoretically, that should eat into the company’s bottom line. And it has, but the increase in prices has meant that the companies profit increases have been more than enough to cover those increased costs.
So, the argument here is the same: Buy Bunge because the company was already favored on rising commodity prices.
Now it has another catalyst due to Indonesia’s band of palm oil exports. Remember, Bunge sells finished products including soybean oil. Soybean oil is going to cost more on the supermarket shelves and in turn that should raise the company’s revenues.
Another reason to consider BG stock is that it already had plenty of room left to grow based on its average target stock price of $139.33. It currently trades for around $117. Indonesia’s palm oil export ban should logically serve to push that stock price higher, making it more attractive.
Teucrium Soybean Fund (SOYB)
Another route to consider for investing in Indonesia’s export ban on palm oil is through an ETF like the Teucrium Soybean Fund (NYSEARCA:SOYB).
The fund has already performed well this year, providing returns of 23%. Over the last year, the fund has provided returns of 22.5%. The fund invests in benchmark component futures for soybeans.
The good news there is that Chicago soybean futures rose to their highest levels since 2012 recently. Those Futures traded above $1,700 per bushel, partially on continued disruptions in the Black Sea region.
However, Indonesia’s palm oil export ban is again making soybean oil increasingly attractive. That is adding to the catalysts already underpinning soybean futures and any potential investment in the Teucrium Soybean Fund.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.