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El Niño Hurts Malaysia's Palm Oil Output

(Credit: Seok Wun Au Yong-Scubazoo) Harvested oil palm fruits at a plantation in Malaysia. Oil palms are grown commercially to produce palm oil, which is used around the world as cooking oil and as an ingredient in many processed foods. Palm oil is also used as a biofuel, which has recently caused an increase in demand. However, there are social and environmental issues surrounding oil palm production, since the plantations often compete with native agriculture or rainforest, and palm oil grown for fuel takes up acreage that might otherwise be used for food crops. Because of the detrimental environmental impact of palm oil production, it is not considered to be a sustainable biofuel, and in fact generates more carbon emissions than fossil fuels.Oil Palm Fruit
March 28
4:48 AM 2016

Malaysia's palm oil production will decline from what has been forecast as the continuing effects of El Niño control the output of the world's second largest producer of palm oil. Production is expected to drop by 2 million metric tons in the year through September compared with a 1.5 million ton fall that was predicted earlier this month.

Dorab Mistry of Godrej International Ltd. said that the production of palm oil in Malaysia is expected to drop more than forecast due to the sauntering effects of El Niño that restrain the palm oil output. He said that Malaysian palm oil production is going to be "well below" 19 million tons this year, and will total 31 million tons in top grower Indonesia, Bloomberg reports.

"This El Nino is doing what all big El Niños do - lowering production and boosting prices," said Mistry, whose traded palm oil for more than three decades. "I shall not be surprised if the deficit for first half 2016 as compared with first half 2015 will be in excess of 1 million tons."

On Friday, the drop in production which is the sharpest in seven years might bring stronger rebound to grade palm oil prices that have risen to 5% in the last two weeks to a two-year high of 2,726 ringgit a ton. During the first half of 2016, there is already an expectation of million tons drop on the Malaysian output.

The first two months of the year's production runs more than 100,000 tons which is less than the accompanying period a year ago while the deficit is expected to expand to at least 350,000 tons by the end of March, based on The Star Online report.

"From July we can expect some recovery in Malaysia. However, we have had severe dry weather in Sabah since the second half of January and that is likely to continue until the first half of April. Sabah palm oil production will suffer an extended impact around September 2016," said Mistry.

Palm oil which has many uses aside from cooking and as a biofuel, swell to a two-year high this month as the most powerful El Niño in two decades prohibited growth of fresh fruit bunches in Malaysia and Indonesia that make up nearly 86% of the world's supply, the Bangkok Post reports.

In February, Malaysian palm stockpiles plunge to an eight-month low of 2.17 million tons says the Malaysian Palm Oil Board. Since February 2007, palm oil production dropped to the lowest level. 

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