Experts divided over El Nino’s impact on 2024 palm oil yields
An analyst expects production to drop by almost a million metric tonnes while the MPOB anticipates higher yields this year.
09/01/2024 (Free Malaysia Today), Petaling Jaya - The El Nino weather phenomenon is expected to lead to a decline in palm oil yield in 2024, but experts differ on the extent of the impact on production.
In fact, there is also the view that any drop in production could be mitigated by higher deployment of labour and maturation of crops and this could even lead to higher yields.
One of two analysts who spoke to FMT Business has pegged the decline in production at up to a million metric tonnes (mt).
Fastmarkets Palm Oil Analytics senior analyst Sathia Varqa said the current El Nino weather pattern could cut production by 500,000mt to a million mt in 2024 if it is fully developed.
However Glenauk Economics managing director Julian McGill, who is the less pessimistic of the two, pointed out that previous significant weather events were worse.
Sathia said most of the losses would be incurred between January and June.
He expects 2023 production of crude palm oil (CPO) to rise to 18.7 million mt from 18.45 million mt in 2022, an increase of 1.36% or 250,000mt.
However, he expects production in 2024 to range between 17.7 million mt to 18.2 million mt.
However, McGill does not expect the Malaysian output to decline by such a wide margin given that “rainfall has been fine”.
As a matter of fact, yields in Malaysia are already low due to poor upkeep and prolonged harvesting intervals, he said.
He expects the impact of El Nino this time around to be less significant than in previous occasions, such as the 2015/16 and 1997/98 events.
The El Nino weather pattern refers to reduced precipitation in Asia as a result of the warming of waters in the Pacific Ocean. The El Nino effect is known to have had an adverse impact on the production of certain crops.
According to McGill, citing the Oceanic Nino Index (ONI) indicator, a moderate to strong El Nino is being tracked but the impact on rainfall has not been as severe as that felt in the previous events.
“This is not just the case in Southeast Asia but in many other regions as well,” he told FMT Business, referring to it as a “broken” El Nino, to account for the fact that, in his view, it is difficult to draw direct parallels.
He said while there were periods of dry weather in the country, particularly in Johor, it was not long enough to have a strong impact on crop yields.
In any case, he said, yields are already low due to labour shortages.
“Our forecasts suggest that output in 2023 will reach 18.6 million mt, while output this year will rise modestly to 18.8 million mt on a continued yield recovery,” McGill said.
Sharing a contrarian view, the Malaysian Palm Oil Board (MPOB) said in recent reports that local palm oil production is likely to rise in 2024.
It attributed its positive analysis to an increase in labour and maturation of plantations.
It said these factors would offset the impact of the El Nino weather pattern.
MPOB director-general Ahmad Parveez Ghulam Kadir said Malaysia’s production had plunged 20% during the 2016 El Nino event, but the impact in 2023 has not been so severe.
“We are anticipating higher production in 2024 than this year because of better labour availability, and some of the new areas would start yielding,” he said to reporters on the sidelines of an industry conference in Mumbai on Sept 28.
This was in contrast to a view that MPOB expressed several months earlier.
In May last year, the board predicted that 2024 production could drop between a million mt and three million mt. Malaysia’s CPO production in 2023 was expected to rise to 19 mil mt, according to MPOB.