Posted on April 30, 2014, Wednesday
THE
most-severe drought in 17 years is threatening supplies of palm oil
from Indonesia and Malaysia, the world’s biggest producers, and
forecasters say an El Nino weather pattern this year may cause even more
damage.
The countries got less than 50 millimetres (two inches) of rain in January and February in some growing areas, the driest spell since 1997. Conditions stressed palm fruits that are crushed to make the world’s most-consumed vegetable oil. Now, meteorologists see increasing chances of an El Nino as early as July that would parch farms from Thailand to Australia.
Prospects for reduced output and rising global demand sent palm-oil futures to an 18-month high in March, boosting costs for top importers India and China. Prices may surge as much as 32 per cent to RM3,500 (US$1,073) a metric tonne by February or March if evidence emerges of a prolonged drought, said Dorab Mistry, a director at Godrej International Ltd, who correctly forecast the price peak in the first quarter.
“Even before El Nino arrives, we’ll start seeing lower-than-expected production,” said Alvin Tai, an analyst at RHB Investment Bank Bhd in Kuala Lumpur, who’s covered plantations for 10 years. If El Nino arrives, prices may top RM3,000, up from RM2,654 yesterday, he said.
Oil palms thrive in tropical regions near the equator with rain ranging from 1,500 millimetres to 4,000 millimetres a year without dry periods of more than a month, according to Barclays Plc. Studies show that less than 100 millimetres over two consecutive months can reduce output by five per cent over the next three years, while droughts longer than six months cut production by 20 per cent, analysts including Ephrem Ravi and Krishan Agarwal wrote in January.
Drought has a delayed impact on the bunches of cherry-sized palm fruits which are harvested all year round. Output would start dropping about six months after the tropical plants are deprived of sufficient moisture, said Joelianto, trading director in Jakarta at PT Sinar Mas Agro Resources & Technology, a unit of Golden Agri-Resources Ltd.
All climate models surveyed by Australia’s Bureau of Meteorology indicate El Nino is likely this year, the forecaster said April 22. The US Climate Prediction Center on April 10 put the chances at 65 per cent, up from 52 per cent. Palm is among the most-vulnerable crops to El Nino weather, Goldman Sachs Group Inc said in an April 13 report.
At the time of the last strong El Nino, in 1997 to 1998, Indonesian production dropped 7.1 per cent and Malaysian output fell 5.5 per cent, US Department of Agriculture data show. The two countries account for about 86 percent of world supply.
“I expect an El Nino rally to begin only after we see pronounced dry weather in the palm belt,” Mistry said by e-mail on April 23. “The hype about an El Nino has been around for some months and the market has adopted a ‘show me the money’ attitude. Until El Nino actually manifests itself clearly and strongly, the market rally will have to wait.”
Nestle SA, the world’s largest food company and the maker of Kit Kat in Europe, said its product prices aren’t linked to short-term changes in raw-material costs. The Vevey, Switzerland-based company buys 410,000 tonnes of palm oil a year for use in ice creams, chocolate coatings and fried noodles, Philippe Aeschlimann, a spokesman, said in an April 24 email.
Unilever, which sells more than 400 brands of food and home products, including Ben & Jerry’s ice cream and Flora spreads and cooking oils, buys about 1.5 million tonnes of palm and its derivatives a year. The London- and Rotterdam-based company didn’t respond to an April 24 email seeking comment.
The drought in January and February was already the worst in parts of Sumatra and Peninsular Malaysia for that period since 1997, according to Donald Keeney, a meteorologist at MDA Weather Services in Gaithersburg, Maryland. Average rainfall for those months ranges from 250 millimetres in northwestern Malaysia to more than 800 millimeters in northern Kalimantan and parts of East Malaysia, Keeney said by e-mail on April 24.
“The damage is already done,” said Ben Santoso, an analyst in Singapore with DBS Vickers Securities Pte Ltd who has tracked the industry for 17 years. “Even though the rainfall has returned to normal, it’s probably a little bit too late. Output during the peak harvesting season will not be as high as previous years because of the drought that we saw in January and February and that’s before El Nino.” — Bloomberg
The countries got less than 50 millimetres (two inches) of rain in January and February in some growing areas, the driest spell since 1997. Conditions stressed palm fruits that are crushed to make the world’s most-consumed vegetable oil. Now, meteorologists see increasing chances of an El Nino as early as July that would parch farms from Thailand to Australia.
Prospects for reduced output and rising global demand sent palm-oil futures to an 18-month high in March, boosting costs for top importers India and China. Prices may surge as much as 32 per cent to RM3,500 (US$1,073) a metric tonne by February or March if evidence emerges of a prolonged drought, said Dorab Mistry, a director at Godrej International Ltd, who correctly forecast the price peak in the first quarter.
“Even before El Nino arrives, we’ll start seeing lower-than-expected production,” said Alvin Tai, an analyst at RHB Investment Bank Bhd in Kuala Lumpur, who’s covered plantations for 10 years. If El Nino arrives, prices may top RM3,000, up from RM2,654 yesterday, he said.
Oil palms thrive in tropical regions near the equator with rain ranging from 1,500 millimetres to 4,000 millimetres a year without dry periods of more than a month, according to Barclays Plc. Studies show that less than 100 millimetres over two consecutive months can reduce output by five per cent over the next three years, while droughts longer than six months cut production by 20 per cent, analysts including Ephrem Ravi and Krishan Agarwal wrote in January.
Drought has a delayed impact on the bunches of cherry-sized palm fruits which are harvested all year round. Output would start dropping about six months after the tropical plants are deprived of sufficient moisture, said Joelianto, trading director in Jakarta at PT Sinar Mas Agro Resources & Technology, a unit of Golden Agri-Resources Ltd.
All climate models surveyed by Australia’s Bureau of Meteorology indicate El Nino is likely this year, the forecaster said April 22. The US Climate Prediction Center on April 10 put the chances at 65 per cent, up from 52 per cent. Palm is among the most-vulnerable crops to El Nino weather, Goldman Sachs Group Inc said in an April 13 report.
At the time of the last strong El Nino, in 1997 to 1998, Indonesian production dropped 7.1 per cent and Malaysian output fell 5.5 per cent, US Department of Agriculture data show. The two countries account for about 86 percent of world supply.
“I expect an El Nino rally to begin only after we see pronounced dry weather in the palm belt,” Mistry said by e-mail on April 23. “The hype about an El Nino has been around for some months and the market has adopted a ‘show me the money’ attitude. Until El Nino actually manifests itself clearly and strongly, the market rally will have to wait.”
Nestle SA, the world’s largest food company and the maker of Kit Kat in Europe, said its product prices aren’t linked to short-term changes in raw-material costs. The Vevey, Switzerland-based company buys 410,000 tonnes of palm oil a year for use in ice creams, chocolate coatings and fried noodles, Philippe Aeschlimann, a spokesman, said in an April 24 email.
Unilever, which sells more than 400 brands of food and home products, including Ben & Jerry’s ice cream and Flora spreads and cooking oils, buys about 1.5 million tonnes of palm and its derivatives a year. The London- and Rotterdam-based company didn’t respond to an April 24 email seeking comment.
The drought in January and February was already the worst in parts of Sumatra and Peninsular Malaysia for that period since 1997, according to Donald Keeney, a meteorologist at MDA Weather Services in Gaithersburg, Maryland. Average rainfall for those months ranges from 250 millimetres in northwestern Malaysia to more than 800 millimeters in northern Kalimantan and parts of East Malaysia, Keeney said by e-mail on April 24.
“The damage is already done,” said Ben Santoso, an analyst in Singapore with DBS Vickers Securities Pte Ltd who has tracked the industry for 17 years. “Even though the rainfall has returned to normal, it’s probably a little bit too late. Output during the peak harvesting season will not be as high as previous years because of the drought that we saw in January and February and that’s before El Nino.” — Bloomberg
Read more: http://www.theborneopost.com/2014/04/30/palm-oil-threatened-by-worst-drought-for-asian-crop/#ixzz30NYoXcal
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