The Star Online (21/02/2018) - PETALING JAYA: The current weak La Nina weather phenomenon is not likely to push crude palm oil (CPO) prices to the RM3,000-per-tonne level this year.

La Nina, which normally brings in heavy rainfall, is favoured for fresh fruit bunch development and higher yields in oil palms compared with the El Nino dry weather phenomenon that disrupts yields in estates.

Back in 2007, when a lengthy La Nina struck Indonesia and Malaysia – the world’s top-two palm oil producers – it caused floods that disrupted the harvesting and transportation of the commodity. It saw CPO prices surge to RM4,300 a tonne in March 2008.

Analysts have also discounted a strong rally for CPO this year, given the post-El Nino production recovery and higher stockpile situation.

As at end-January, the palm oil stockpile stood at 2.55 million tonnes on the back of 1.59 million tonnes in production.

According to Maybank Investment Bank (Maybank IB), the present weak La Nina has caused little damage to palm oil production this time around.

It said although La Nina did hurt Argentina’s soybean prospects, the CPO price so far has failed to be lifted, given the ample stockpile and recovering production prospects post 2015-2016 strong El Nino.

“But we do expect a little more seasonal upside to CPO prices as we enter low crop months in February-March this year,” it said in a report.

Furthermore, the brokerage said, there were no major floods reported in the oil palm growing regions by the current La Nina.

It said the current weak La Nina that developed at end-2017 may have peaked, with most models having forecast the La Nina to end early during the southern hemisphere autumn.

“In the palm oil producing regions, rainfall has generally been good throughout 2017 and even into January this year, partly aided by the weak La Nina,” it added.

Maybank IB said although there were occasional floods reported in parts of Sabah, Sarawak and the east coast of Peninsular Malaysia in late 2017 and early 2018, it believed this was nothing beyond the usual.

“Our checks suggest the situation is under control with minimal damage with 2017 hotspot count in Malaysia and Indonesia at the lowest in 10 years,” it added.

The good rainfall in 2017 will continue to benefit 2018 production recovery, which started in the fourth quarter of 2017 after a severe drought hit this region in third-quarter 2015.

“Hence, 2018 will be the first full year of yield recovery,” it said, adding that the Malaysian Palm Oil Board last month released its preliminary CPO production 2018 estimates for Malaysia at 20.5 million tonnes, up 2.9% year-on-year.

Maybank IB pointed out that while there was beneficial rainfall in this region, it was relatively dry in parts of Argentina, the world’s third-largest soybean producer after the United States and Brazil.

It said soybean crop prospects in Argentina had been curtailed but nonetheless mitigated by relatively good crop prospects in Brazil and a record US soybean crop harvest late last year.

While year-to-date US soybean and soybean meal prices have risen by 6.1% and 17.5%, respectively, reflecting the weak crop prospect, it has yet to spill over to soyoil (down 5.1%) or palm oil prices (firmed 4.5% in US dollar terms) over the same period.

“We believe the higher-than-expected palm oil production and stockpile in fourth-quarter 2017 had prevented a corresponding price rally,” added Maybank IB.

As at 6.30pm yesterday, the benchmark CPO futures for May delivery closed RM30 lower at RM2,485 per tonne.

Read more at https://www.thestar.com.my/business/business-news/2018/02/21/no-strong-cpo-rally-seen-this-year/#6DTif00WyDGVx4q4.99