Palm oil output growth in Malaysia will stay weak for the next two years because an aggressive replanting scheme and hot weather will aggravate yield stress in oil palms, an industry regulator said today.
But the extent of output softening hinges on the severity of the brewing El Nino weather condition, which has previously brought droughts to the world’s No. 2 producer of the vegetable oil, Sabri Ahmad, chairman of the Malaysian Palm Oil Board (MPOB), said.
“El Nino is the wild card for now,” Sabri said in an interview in the Malaysian capital.
“The impact won’t be felt immediately but the trend of low production growth will persist into 2010 and 2011 since we have been good with our replanting this year and the yield stress has not tapered off.”
El Nino occurs when the eastern Pacific Ocean heats up, with warmer, moist air moving east, leaving drier weather in the western Pacific and Australia and putting crops at risk of failure.
The most devastating El Nino was in 1997, triggering droughts in Malaysia and Indonesia. Palm oil yields fell a year later by 20 per cent, to 3.2 tonnes per hectare as hot weather limited growth of the female flowers that produce palm fruits.
“There could be less oil because hot weather will also dry up fruits and the trees, but most of the big plantations have good water supply management plans and mini-reservoirs by now, so declines in yields won’t go below 20 per cent,” Sabri said.
During the last four El Nino episodes, palm oil prices rose but the impact on production was seen 12-18 months later. The 1997-98 El Nino saw palm prices spike 125 per cent within months, Reuters data showed.
Benchmark palm oil prices have rallied nearly 40 per cent so far this year on strength in commodity markets, tight supplies and still-resilient exports with the possible El Nino effect also giving support.
Even if the El Nino ends up being weak, palms are still producing less oil as biological yield stress that settled in after last year’s record harvests has yet to clear up, Sabri said.
“There is not going to be any double-digit growth for palm oil output this year. The peak will be in September but it’s not fantastic and that’s why we have revised our 2009 output to 17.5 million tonnes,” he said.
The government earlier pegged output at 17.7 million tonnes. Other analysts have also revised palm oil output this year, attributing the slowdown to a replanting scheme initiated last year when stocks were above 2 million tonnes.
As of June, applications to replant 150,000 hectares of oil palm had been received, accounting for three-quarters of the scheme started in October that aimed to remove 700,000 tonnes of palm oil when stocks swelled, MPOB data showed.
Although stocks rebounded in May to 1.37 million tonnes after 5 months of declines as output picked up, Sabri expects shipments to Asia and Europe to be strong for the second half as well, with year-end inventories set to hover at around 1.5 million tonnes.
“We are still in a tight supply situation and prices are bound to range between RM2,400 and RM2,500 for this year. We are still okay because global economy is starting to recover and people would still need to eat,” he said. -- Reuters
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