Palm Could Surge On La Nina: IOI Corp

IOI Corp, Malaysia’s No. 2 planter, expects the brewing La Nina weather event to have a major impact on palm oil production in Southeast Asia as heavier rainfall may hamper harvesting.

La Nina often follows after drier weather brought by an El Nino anomaly that emerged last year and can induce heavier rains in palm oil-producing Southeast Asia as well as drier weather in soy oil exporting Americas.

“The whole world weather is changing very rapidly. If La Nina sets in during the second half, it will coincide with seasonally higher production months,” IOI Chairman Lee Shin Cheng told Reuters in an emailed response on today.

“If this happens, palm oil prices, for sure, will surge upwards.”

Lee did not give a price forecast, but the last La Nina weather event starting in 2007 brought floods to Indonesia and Malaysia, the world’s top palm oil producers, and disrupted harvesting and transport of the vegetable oil.

Benchmark Malaysian palm oil futures jumped 10 per cent over December 2007 and January thanks to La Nina concerns, prompting Chinese buyers to scramble for cargoes and push palm oil to a record 4,486 ringgit ($1,400) in March 2008.

IOI, valued at $10.6 billion on the Malaysian stock exchange, has 80,000 hectares of oil palm estates in Indonesia and nearly 170,000 hectares in Malaysia.

Lee, who is the company’s founder, said Indonesia’s palm oil output will likely rise 7.1 per cent to 22.5 million tonnes this year from a year ago, in the mid-range for the Indonesian government’s 21-23 million tonnes estimate.

Indonesian planters say more oil palm estates coming into maturity may keep production up as younger palms will be more resistant to erratic weather.

Lee said Malaysian palm oil production in 2010 will not see any significant increase and may remain flat at 17.6 million tonnes, in line with government and industry forecasts.

Palm oil’s peak output season in Southeast Asia starts near the end of the third quarter to October or November which coincides with the monsoon season, planters say.

La Nina can bring about much heavier monsoon rains that can slow down the harvesting rounds in a 20,000 hectare oil palm estates to once a month compared to the usual every fortnight schedule, planters say.

And prolonged exposure to rains and floods can raise the moisture content of palm oil grades, forcing producers to sell to refiners at a discount.

“Palm oil production in Malaysia is struggling after yields were affected from El Nino last year and early 2010,” said a planter in the key growing region of Sabah on Borneo island.

“Stronger rains from La Nina could upset the scheme of things.” – Reuters

Source: Business Times

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