Global output of palm oil will be smaller than estimated a month ago amid dry weather in top producers Indonesia and Malaysia, Oil World said.
Palm oil is used to produce specialty fats for the animal feed industry, particularly in the top producing countries.
World production will be 60.9 million tonnes in the 2014-15 season that started Oct 1, 200,000 tonnes smaller than forecast in September while still larger than last year's output of 58.92 million tonnes. Production in Indonesia was pegged at 31.9 million tonnes, up 6.6% from the prior season, while Malaysia's output will drop 1.6% to 19.83 million tonnes.
Malaysia and Indonesia experienced dry conditions in early 2014, as well as in June and July and again in some areas in September. At the same time, demand is rising from countries including India and China, with global imports expected to reach 44.71 million tonnes in 2014-15, up 5.1% from a year earlier.
The growth in world production is likely to slow down, according to Oil World. "Latest indications for September and October point to reduced yields and palm oil output. This must be regarded as the first lagged effect of the unusually dry conditions registered in many oil palm growing areas of Malaysia and Indonesia in January and February 2014," Oil World said in its report.
With a record soybean crop in the United States, palm oil futures on Bursa Malaysia Derivatives in Kuala Lumpur have dropped about 17% this year.