KUALA LUMPUR: Malaysia's palm oil output is likely to escape the worst of El Niño, for now, as better-than-expected rainfall limits crop losses, offering a measure of relief from a global cereal and vegetable oil supply squeeze that has fuelled food inflation.
The world's No. 2 palm oil producer is expected to deliver about 19.8 million to 20 million metric tons in 2027, analysts said, which is about 15% above production in 2016, when a strong El Nino curbed yields, but just below this year's expected near-record output of 20.28 million tons.
"We're looking at a shortfall in production next year, no question about it, but nowhere near as dramatic a shortfall as implied by many people," said Julian McGill, managing director of agricultural commodities advisory firm Glenauk Economics.
Still, a steeper decline in top producer Indonesia will leave a supply deficit in the world's most widely used edible oil.
El Niño weather has brought dryness to much of Asia and is expected to intensify in the coming months, hitting global food production, which has kept palm prices elevated despite Malaysia's stocks hitting unprecedented levels in September.
As a historical reference for the potential impact on production in 2027, plantation analysts at Malaysian banks have cited the strong 2015/2016 El Niño, which led to a 13.2% drop in Malaysia's crude palm oil output in 2016.
BETTER RAINS
McGill said Malaysia has recorded far fewer months with rainfall below 100 mm (3.9 inches) than during 2015-16's strong El Niño, while parts of Indonesia's Central and South Kalimantan are approaching the dryness seen that year.
"For Indonesia, we expect a decline of around 2 million metric tons compared to 2026 while Malaysia will see a much more modest decline of less than 0.5 million metric tons," he said.
The Indonesian Palm Oil Association (GAPKI) estimated production to reach 53.7 million tons this year and has forecast output will drop to 51.7 million tons in 2027.
"We have been seeing rains almost every day in Malaysia across all the growing areas," Mohd Haris Mohd Arshad, CEO of Malaysia's SD Guthrie, one of the world's largest palm oil producers, told Reuters.
"However, for the first time ever, we are seeing forest fires happening in Papua New Guinea and in Irian Jaya. So you will probably see Indonesia suffer a lot more potentially than Malaysia."
Production in Peninsular Malaysia will likely be less affected than Sabah and Sarawak on Borneo in 2027, when trees will face the full impact of the dry spell, said M.R. Chandran, chairman of agritech firm IRGA.
However, production in Sabah and Sarawak is expected to rise sharply in October after dry August weather accelerated fruit ripening through September, he said.
Chandran estimated Malaysia's palm oil production in 2027 at 20 million tons.
Malaysia's weather agency has forecast El Niño to peak between March and May 2027 with maximum temperatures expected to exceed the local record of 40.1 degrees Celsius (104.18 degrees Fahrenheit) set in 1998. - Reuters
