PETALING JAYA: The plantation sector will likely see the impact of the hot and dry weather spell more towards the later part of 2024, but total production of the year will likely be higher year-on-year (y-o-y), helped greatly by the availability of adequate supply of labour to the sector.

Datuk Dr Ahmad Parveez Ghulam Kadir, director-general of the Malaysian Palm Oil Board (MPOB), told Starbiz the heat spell driven by the El Nino phenomenon became severe in the fourth quarter of last year (4Q23) and extended into 1Q24, adding that the impact of the weather phenomenon on oil palm yield is not immediate.

“The effect varies based on the severity of the event, with strong El Nino events often impacting yields significantly, while weak-to-mild events typically do not.

“The recent El Nino event, which strengthened at the end of 2023 and continued through early 2024, is considered strong and is expected to affect fresh fruit bunch (FFB) production by the end of 2024,” he said.

Despite that, crude palm oil (CPO) production is projected to continue to increase by 1.1% in 2024 to about 18.75 million tonnes, up from 18.55 million tonnes in 2023 and 18.45 million tonnes in 2022.

This growth in total production will be supported by the improvement in labour availability for the sector and better fertiliser application, he said.

Lower fertiliser prices compared to previous years have made it more affordable for farmers to apply the necessary nutrients to their crops, enhancing growth and yield.

“While weather conditions, particularly the ongoing effects of El Nino, will certainly influence production levels, the industry’s resilience and adaptive strategies play a crucial role.

“The combination of improved labour conditions and effective fertiliser use helps mitigate some of the adverse effects of El Nino, supporting a modest increase in production,” Ahmad Parveez explained.

Fundamentals for the sector remain strong. In May, CPO production hit 1.7 million tonnes, which was 13% higher month-on-month (m-o-m) and 12% higher y-o-y, which was above analysts’ expectation.

Ahmad Parveez said the improved labour situation ensures that harvesting and other crucial activities are conducted efficiently and on time, which is vital for maintaining and boosting CPO production.

Any negative weather impact was also neutralised partly by the lower fertiliser cost, which made it more feasible for planters to apply adequate amounts of fertilisers and are essential for the growth and yield of oil palms.

Better fertilisation application can help increase production, despite the challenges posed by the weather factor, he said.

Year-to-date, CPO production increased by 9.4% y-o-y to 7.26 million tonnes, offsetting the increases in exports that grew by 6.7% y-o-y to 6.3 million tonnes.

Production growth is set to continue. MIDF Research noted that although the mild El Nino peaked in April, the mixed dry-wet weather might be prolonged up to July, thereby improving estate activity ahead, particularly in terms of FFB evacuation processes and manuring activities.

The research firm expects CPO production to maintain its momentum in the remaining months, reaping the benefits of fertiliser application over the past two years.

RHB Research meanwhile stated with weather conditions having normalised since April to May in Indonesia, production in the world’s largest CPO producer should start to pick up in the coming months.

Indonesian planters continue to expect to see flattish-to-moderate output growth of 0-5% in 2024, it added.

From a CPO price perspective, the May MPOB data also showed exports for the month of 1.38 million tonnes were up 12% m-o-m and 28% higher y-o-y, which helped ensure stock levels growth saw a marginal increase to 1.75 million tonnes (up 1% m-o-m, 4% y-o-y) as increased domestic usage helped as well.

What’s important for planters is the palm oil exports are starting to show a rebound with destination markets seeking to shore up depleted edible oils stock levels.

The outlook for the April to June 2024 period suggests a rebound in imports by India, China and Pakistan, driven by the improved price competitiveness of palm oil after price rallies in competing vegetable oils like sunflower.

Indian importers are capitalising on the lower export prices available on the global market, following a significant reduction in its domestic stocks during 1Q24.

“This trend is expected to bolster India’s palm oil imports in the coming months. Similarly, China has begun to incrementally increase its imports of palm oil, soyoil and rapeseed oil to replenish its reduced stocks. This strategic move aims to stabilise the domestic market and ensure sufficient supply,” Ahmad Parveez said.

He believes that demand from these key markets will continue, thereby firming the price of CPO.

Furthermore, the current high crude oil prices at above US$80 a barrel are expected to further boost demand for palm oil, which in turn will support CPO prices.

Buyers may be having other ideas. Cargo surveyors Intertek and Amspec estimated palm oil exports for the first 10 days of

June had decreased by 20.4% and 21.6% m-o-m to 295,000 and 285,000 tonnes, respectively. This will likely pressure prices.

“We expect CPO prices to weaken over the next six-to-12 months on rising output. The key risk is a strong La Nina, which could affect global vegetable oil output and support prices. A mild La Nina could be positive for palm oil output, especially in Indonesia which has suffered due to El Nino last year.

“Indian buyers are price-sensitive and we think they may wait for prices to correct,” said Akash Gupta, director of credit research and analysis at Fitch Ratings.

TA Research noted Indonesia had implemented a reduction in palm oil export tariff in June, setting the reference price for CPO in June at US$778.82 per tonne, down from US$877.28 a tonne in May.

This adjustment would reduce the export tax for CPO to US$18 per tonne and the levy to US$75 a tonne, resulting in a reduction of export costs by US$49 per tonne compared to the previous month.

“We anticipate this may pose a threat to Malaysian palm oil exports, which are losing export competitiveness. If the production were to maintain its robust growth momentum, it would lead to resurgent palm oil stockpiles, which would potentially limit the CPO price increase,” the research house noted in a sector report.

It expects CPO prices in the coming months to be influenced by both palm oil production in Malaysia and Indonesia and weather patterns in the primary soybean-growing regions of Brazil and Argentina, where the La Nina weather could leave its mark the most.

TA Research added the US Department of Agriculture estimated global soybean production is set to hit a new record of 422.3 million tonnes, up some 25.3 million tonnes from 2023 and 2024 due to expanded planted acreage and average yield improvements.

Global soybean ending stocks for 2024 and 2025 are estimated at 128.5 million tonnes, up some 16.7 million tonnes from the previous year.

As such, MPOB anticipates firm CPO prices in 2024, ranging between RM3,900 and RM4,200 per tonne, helped by demand from key markets.

The benchmark three-months forward CPO futures contract on Bursa Malaysia Derivative yesterday last closed at RM3,930 a tonne, up RM14 for the day. CPO has been trading range bound between RM4,500 to RM3,500 in the past 23 months.


Sumber : The Star