Malaysian Floods to Prove Longer-Term Boon for Palm Yields

Jan 27, 2015

The Jakarta Globe. Kuala Lumpur/Singapore. Recent flooding in Malaysia is expected to dent palm oil output in the first quarter but should lead to higher yields for the rest of the year, putting pressure on prices in a well supplied market.

The worst floodwaters in decades that inundated oil palm estates across Malaysia last month have receded in most plantations and crop-friendly sunny weather is returning, industry officials and traders said.

Higher palm oil output in Malaysia, the world’s second largest producer, will add to record global vegetable oil supplies and comes amid tumbling crude oil prices — a bearish scenario for palm oil which hit a one-month low on Tuesday .

“For smaller trees floods are a problem, but most of the flooding has been in areas where we have mature palms which are more than three to four meters tall,” said M.R. Chandran, a veteran palm oil industry official who works as a consultant.

“Longer term it will help as soil moisture levels have been built up.”

The flooding is in contrast to a year ago when a severe drought hit Southeast Asia, leading to lower yields as trees stressed by a lack of moisture produced fewer fruit bunches.

Malaysian palm oil output is expected to rise to a record 20.1 million metric tons in 2015, according to a Malaysian Palm Oil Board official, below an October forecast of 20.5 million tons.

Crude palm oil output in 2014 was 19.67 million tons.

Supply glut

The bumper palm oil outlook coincides with expected record high production of soybeans in South America this year and record output in the United States in 2014.

Global edible oil supplies are rising even as the commodity’s use as a renewable fuel is likely to take a hit, given the 50 percent drop in crude oil.

The benchmark Bursa futures hit a six-month high on Jan. 15 as floods curbed supplies, but the market has since fallen nearly 10 percent to its lowest since Dec. 22.

“If you look at the market, it is coming down as the water levels recede, just as it went up when we saw flooding,” said a senior executive with an international trading company in Kuala Lumpur.

Weaker demand from key buyers China, India and Europe will put further pressure on prices. Exports of Malaysian palm oil products during Jan. 1-25 fell 17.7 percent from a month earlier, cargo surveyor Intertek Testing Services said on Monday.

Still, Malaysian planters face the daunting task of stabilizing flood-ravaged estates.

“If trees are under water for a long time … they become prone to pests and diseases,” said one planter based in the Malaysian state of Sarawak on Borneo.

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