17/06/2010 (Bloomberg) — Palm oil production in Indonesia and Malaysia may increase next year as the La Nina weather pattern, which brings wetter-than-usual weather, boosts productivity, potentially hurting prices, according to OSK Investment Bank Bhd.

“Periods of increased rainfall are generally positive for fruit production of the water-hungry oil palm,” analyst Alvin Tai said today. “Places closer to the equator have been wetter- than-usual,” Tai said.

The two countries, which account for about 90 percent of production, earlier this year experienced El Nino conditions, which curbs rainfall and hurts yields. The Malaysian Estate Owners Association, which warned in March that output may drop 3 percent this year on the El Nino, said today that production may be level as the crop improved in the second quarter.

South Sumatra and Kalimantan in Indonesia “have been getting a lot of rainfall so far,” Tai said. Northern Sumatra and Malaysia’s Sabah were dry in the first quarter and are just “starting to see increased rainfall,” he said.

Palm oil futures on the Malaysia Derivatives Exchange, which have declined 11 percent this year, fell as low as 2,369 ringgit ($724) a metric ton today, the lowest price in almost seven months. The commodity is used in foods, cooking and as a fuel additive.

Almost 100 millimeters of rain fell in Singapore before 11 a.m. yesterday, more than 60 percent the average rainfall in June. The rains caused flash floods, with the Orchard Road shopping district having the worst flooding in 26 years. Singapore is located between Malaysia and Indonesia.

‘Serves as a Reminder’

The freak flooding in Singapore “serves as a reminder that we are really experiencing the La Nina weather phenomenon,” Tai said. La Nina conditions are increasingly likely to develop this year, Australia’s Bureau of Meteorology said on June 9.

Indonesian planters remain confident of strong second-half output this year, Ivy Ng, an analyst at CIMB Investment Bank Bhd., wrote in a report today. “The same cannot be said for the Malaysian planters, which expect some impact from the El Nino- induced drought to kick in during the later part of the year.”

Malaysia’s output may be level this year at 17.6 million tons, lower than a targeted 18 million tons, Boon Weng Siew, president of the Malaysian Estate Owners Association, said today by phone, without forecasting production in 2011. The group represents small- and medium-sized growers.

PT Astra Agro Lestari, Indonesia’s biggest publicly traded plantation company, said in May that crude palm oil production fell 3 percent to 295,932 tons between in the first four months of the year from a year earlier.

Heavy rains are forecast this week in southern Sumatra, Maryland-based MDA Information Systems Inc., which does forecasting for tropical crops, said today.