May 12, 2014

Indonesia's 2014 palm oil output to exceed 28 million tonnes


Despite concerns over the effects of drought earlier this year and an upcoming El Nino weather phenomenon, Indonesia's palm oil output is expected to exceed 28 million tonnes this year.
Specialty fat sources are derived from palm oil to increase the energy density of feed rations, for example for lactating dairy cattle and rapidly growing starter beef cattle.

A drought in January and February in Malaysia and Indonesia, which provide approximately 85% of the world's palm oil, has raised the prospect of a drop in production later this year.

Although dry weather does not have an immediate effect on the fruit, the impact will be noticeable if the fruit has been deprived of water for a number of months.

While palm oil prices have risen slightly in recent months in Indonesia, the country's palm oil association attributed the rise to other factors, and industry observers predicted the drought's impact would start to be felt later in 2014.

"We are likely to see the effects starting in September to October, and in terms of production, we are likely to see a double-digit percentage drop in Indonesia and Malaysia," said Tan Chee Tat, a Singapore-based investment analyst at Philip Futures.

Another threat weather forecasters are predicting is an El Nino weather phenomenon later this year, which could lead to another drought that will affect production next year.

The Australian Bureau of Meteorology issued an El Nino alert this week, warning the possibility of the weather pattern developing was at least 70%, and it could appear as early as July.

This follows recent warnings from other weather agencies there is a good chance of an El Nino.

Alan Lim, a palm oil plantation analyst from Kenanga Investment Bank in Malaysia, said that "in the worst case scenario" an El Nino could cause a 30% drop in production in the top two producing countries.

He said production would be hit some 6 to 12 months after this year's El Nino, meaning in 2015.

This concurs with a prediction by Joko Supriyono, secretary general of the Indonesian Palm Oil Association (GAPKI), and a director of Astra Agro Lestari, one of the largest palm oil producers in Indonesia.

"Some forecasters tell us this year's palm oil production may reach 30 million tonnes," Supriyono said.

"I see in the Sumatra area it has started to rain ... and production is getting better this month," he said, adding that El Nino was expected to affect weather patterns over the next three months. "We will have to see in the coming months," Supriyono said.

He said Indonesia's crude palm oil output would show a "slight increase" above the 28 million tonnes he forecast in January.

Derom Bangun, chairman of the Indonesian Palm Oil Board (IPOB), also said if anything El Nino would have a delayed impact on the industry.

"If it happens this year, the impact will not be felt this year, but next year," Bangun said, restating his earlier forecast for production to reach 29.5 million tonnes this year.

Observers also warn a steep rise in palm oil prices could boost alternative products, especially soybean oil, which is mainly grown in the United States and Brazil.

Despite the growing concerns, some industry players and analysts downplayed the threats to the palm oil industry and were optimistic that palm oil would stay ahead of its competitors even during a sustained period of drought.

It is the highest-yielding vegetable oil crop and needs less than half the land required by other crops, such as soybean, according to the Roundtable on Sustainable Palm Oil, an organisation established to promote sustainable use and growth of the commodity.

Indonesia's climate agency also played down the possibility an El Nino would hit the country's main plantation areas, on western Sumatra and the country's portion of Borneo island.