26/04/2013 (AgriMoney.com) - The poor prospects for palm oil prices prompted plantations group Sipef to warn of a drop in earnings this year, seeing little prospect of a revival in tea values for now either.

The bananas-to-rubber plantation group, which in February said that it was "on track to achieve a satisfactory result for 2013" on Thursday said that was now forecasting a decline in earnings for a second successive year.

The drop reflected the "not particularly favourable" outlook for palm oil prices, which it saw being depressed by weakness in gasoline prices, which have reduced the appeal of biodiesel based on the vegetable oil, and the prospect of a strong US harvest of soybeans.

Soybeans are the source of soyoil, palm oil's major rival on vegetable oil markets.

"The planting intentions of oilseed crops that will be harvested from September onwards, indicate ample supply and therefore there is limited optimism of much higher prices in the second half of the year," Sipef said.

Tea price prospects
The group also foresaw little prospect for a recovery, for now, in prices of tea, which it grows in Indonesia, the prices of which have "come under severe pressure" thanks to a strong harvest in Kenya, the top exporter of black tea.

Kenya's tea output, helped by an extended short rainy season and an early start to the main monsoon, more than doubled, year on year, to 38.5m kilogrammes in February, putting output so far in the season 15.7% ahead of that achieved in the record year of 2010.

Prices of top grade broken pekoe ones tea fell to $3.38 a kilogramme at auction in Kenya last week, down 22% so far this year.

"Unless weather patterns change dramatically we will see little upward movement for tea prices in the second quarter," Sipef said.

However, the end of Kenya's long rains around June, and the onset of demand ahead of the northern hemisphere winter, should see prices "rebound from current levels".

Rubber recovery?
The group said was more upbeat on hopes for a recovery in rubber prices, which last week hit a 2013 low of 242.60 yen a kilogramme in Tokyo, down 28% from a high reached in early February.

The market faces a series of headwinds, including disappointing Chinese and world economic growth, and the eurozone crisis, "all not supporting the rubber market", besides a lack of market support from major producing countries and Chinese destocking.

"There was a warehouse fire in China after which the government decided to increase the safety levels and hence reduce stock levels in existing warehouses.

"China, the biggest importer of rubber in the world, was absent from the market most of March, and prices took a nosedive."

However, "it seems  that most of these elements have been priced into the current market price", Sipef added, leaving rubber prices vulnerable to increases on signs of demand.

"Consumers are very hand-to-mouth covered and any buying spree should be supportive to the prices."

Plantation inundations
The comments came as the group unveiled crop production hurt by weather setbacks in many countries, with tea output helped back by "insufficient sunlight" and palm oil and rubber production in Papua New Guinea hurt by excessive rains already reported by New Britain Palm Oil.

"The group has experienced a higher than expected reduction in the volumes produced toward the end of the first quarter in all mature plantations," bar one project in northern Sumatra.

The group's Papua New Guinea palm oil operations "struggled" to cope with grains which topped 2,900mm, more than nine feet, in the first quarter.

"This resulted in limited harvesting opportunities, irregular transport and lower extraction rates," Sipef said, if adding that it was "able to ship all contracted volumes, albeit occasionally with some delay involved".