06/10/2011 (Agrimoney.com) - REA Holdings, which may next month reveal longstanding plans for emigrating from the UK, stoked ideas that a dry spell may take a toll on palm oil production next year.

The plantations and coal group said that while its production of oil palm fruit had soared 24% to 455,000 tonnes in the first nine months of the year, beating targets by more than 20,000 tonnes, a dearth of moisture had raised a question mark over next year's production.

"The third quarter has been relatively dry," the group said, with rainfall at its Indonesian plantations so far during 2011 running 22% below last year's levels.

"Whilst this is not expected to affect the 2011 crop it is possible that there may be some negative impact on 2012 crops."

'Tree stress'
The comments follow a warning on Tuesday from analysis group Oil World that "growth of palm oil production is likely to slow down in 2012" thanks to a lack of rains.

"Some palm oil-producing regions have received below-normal rainfall, primarily between May and July, and young palms have already shown signs of stress," Oil World said.

They also come amid growing concerns of a return of the La Nina weather pattern, which tends to foster weather extremes.

Nonetheless REA said it was "positive" about its prospects, despite the world economic slowdown, noting that "offtake remains at good levels" in palm oil markets.

Palm oil prices too were at "good levels", if below highs reached earlier in the year, and vulnerable to a fall in crude markets.

"There is considerable statistical evidence that movements in vegetable oil prices correlate with movements in petroleum oil prices," the company said.

"Any reduction in world industrial activity as a result of current economic uncertainties could therefore negatively impact the crude palm oil price."

Move abroad?
The group also, while acknowledging "uncertainties in most stock markets worldwide", said it remained on track to decide by the end of the year on plans to emigrate, or seek a listing in Jakarta for its main palm oil business.

"We will make a decision by the end of the year," a company spokesperson told Agrimoney.com, signalling that while a verdict was unlikely this month "come November we will have a much better idea".

A listing nearer the centre of REA's operations would improve the group's appeal to South East Asian investors, who attribute higher multiples than Western peers to plantation groups. Indeed, REA shares jumped 11% on August 24, when it highlighted its emigration plans.

'Makes great sense'
City broker Hardman & Co said that a move to a divisional listing Jakarta would likely be "strongly supported" by shareholders.

"For REA, it is the critical relationships with the Indonesian authorities and local population… that matter most to it in the region – and in this context a Jakarta listing makes great sense," Hardman analyst Doug Hawkins said.

"Companies perceived as local are likely to enjoy greater access to land and government benevolence."

REA shares closed down 2.1% at 585p in London.