06/08/2010 (Bloomberg) — Palm oil harvesting in Malaysia, the world’s second-biggest producer, may be disrupted in November and December as the La Nina weather event causes flooding in major growing areas, the country’s state forecaster said.

La Nina, caused by a cooling of the Pacific Ocean, may gain strength by the end of the year and bring higher-than-normal rainfall to northern Sarawak and the state of Sabah, the Malaysian Meteorological Department said in an e-mail.

“During November and December, wetter conditions with rainfall slightly above normal are expected in the Peninsular as well most areas in Sabah,” the forecaster said. “During this time, monsoonal floods are expected in low-lying areas, particularly in the states of Kelantan, Terengganu and Pahang.”
Palm oil has rallied 16 percent from a seven-month low on July 7 on optimism that consumption will increase in Asian nations including India and China, which mark festivals in the September quarter, and on concern that weather may disrupt output in Indonesia and Malaysia, the top producers.

Malaysian stockpiles dropped to a 10-month low in June as exports rose, according to the nation’s palm oil board.

October-delivery futures advanced as much as 1.1 percent to 2,648 ringgit ($842) a metric ton on the Malaysia Derivatives Exchange, the highest intraday price since March 12., before trading at 2,643 ringgit at the 12:30 p.m. break. The commodity has gained 5 percent this week, heading for a fourth straight weekly advance.

Main Driver

“In the short term, weather will likely be the main driver of palm oil prices,” Tan Ting Min, a plantation analyst for Credit Suisse Group in Kuala Lumpur, said in a report. “If La Nina were to coincide with the monsoon at end-2010, palm oil harvesting could be disrupted due to flooding and heavy rainfall while extraction rates could fall.”

Credit Suisse raised its estimate of the average palm oil price this year to 2,600 ringgit, from 2,500 previously.

La Nina can disrupt harvests and lower palm oil production in Indonesia and Malaysia, supporting prices, Citigroup Inc. said this week. The weather event is now in its early stages based on indicators in the Pacific Ocean, Australia’s Bureau of Meteorology said on Aug. 4.

Malaysia’s palm oil production may drop to 17.2 million tons from 17.6 million tons in 2009 because of the impact of dry weather caused by El Nino earlier this year and the likely onset of La Nina, Dorab Mistry, director at Godrej International Ltd., said yesterday. That compares with a March forecast for an increase to 18.1 million tons by Malaysia’s Industries and Commodities Minister Bernard Dompok.

Malaysia’s output increased to 9.98 million tons in the January-June period from 7.92 million tons a year earlier, data the country’s Palm Oil Board show.