9/2/04 (Oilmandi) - Palm oil yields may be reduced from what theyotherwise would have been in late 2004 and early 2005 as rainfall inMalaysian palm oil regions was below normal during January-June 2004.

Malaysian palm oil bears a major impact on global oil and oilseed complex,especially India, as it is the econd largest importer of palm oil in theworld. Moreover, domestic oil & oilseed industry and trade depend on thepricing of palm oil vis-a-vis other major oils such as soya oil andsunflower oil.

India trades in futures on the National Commodity and Derivatives Exchange(NCDEX). According to a report by Foreign Agriculture Service of theUnited States Department of Agriculture, rainfall in the first twoquarters of 2004 averaged 139 millimeters below normal across Malaysia. Itrained 159 millimeters per month on a weighted average basis during thefirst quarter and 167 millimeters per month during the second quarter,that's 13 and 33 millimeters below normal respectively. This should resultin near to slightly below normal palm oil yields from October 2004 toMarch 2005, because low rainfall reduces pollination, which reduces yield6 to 9 months after the low rainfall event.

However, based on rainfall over the past 10 quarters, Malaysian palm oilyields should to be near trend overall during the next year and a half.Production levels should trend higher as area under oil palm continues toexpand at a fairly consistent rate. Examining the last 10 quarters, abovenormal rainfall was received during 4 quarters, and below normal rainfallwas received during the other 6 . As a result, output levels should befairly close to trend during the next 6 quarters, but below normal outputis expected from October 2004 to March 2005. Conversely, better thannormal yields are expected during July to September 2004 and from April toDecember 2005.

An examination of historical yields indicates that deciding what normalyields are a bit problematic. The lagged rainfall effect resulted inrather poor yields from 1997-98 to 1999-2000, when yields averaged 3.63tons per hectare, but the lagged rainfall effect resulted in favorableyields from 2001-02 to 2002-03. Additionally, there has been a generallyrising yield trend since 1991-92, as improved varieties of plantingmaterial have become available to oil palm plantations.

The Malaysia Palm Oil Board has released area-under-oil-palm-data for2003, indicating that area expansion is continuing at about the same levelas in previous years. The Board put mature area at 3.30 million hectares,up 115,000 hectares from 2002. The growth in area was 183,000 hectares in2002 and 63,000 hectares in 2001. Mature area increased an an average of128,000 hectares per year over the last ten years. Immature area is areathat has been planted but has not yet begun to produce fruit. It takes 3to 4 years from planting until palm trees are mature enough to producetheir first fruit bunches.

Total area under palm, mature and immature, was 3.80 million hectares in2003. Total area increased 132,000 hectares in 2003 as compared to a10-year-average growth of 150,000 hectares.

Using Malaysian rainfall data, yield for 2003-04 (Oct-Sept) is estimatedby the Malaysia Rainfall Regression Model (MRRM) at 4.00 tons per hectare,which is above the 5-year-average of 3.91 tons per hectare, but below the10-year trend of 4.20 tons per hectare.