08/03/2012 (AgriMoney.com) - Fake seeds are adding to setbacks for palm oil producers struggling to match demand, adding to factors such as strong Indian imports and a firm crude market, which could make 2012 a record for prices of the vegetable oil.

One-third of oil palm plantations in Indonesia, the top producer, may be planted with counterfeit seed, with the proportion potentially more than one-half in Sumatra, according to government data.

This is "resulting in lower-than-estimated yields", the US Department of Agriculture bureau in Jakarta said, warning that the long period between replantings meant this weakness would continue.

Production losses could "be as high as 260,000 tonnes in the current marketing year" in Sumatra alone, the bureau said, cutting its estimate for total Indonesian output in 2011-12 by 400,000 tonnes to 25.0m tonnes.

Palm squeeze
The bureau also warned of "poor logistical infrastructure" in Indonesia, meaning exports would not reach their potential, allowing domestic inventories to climb to a record 1.28m tonnes at the end of 2011-12.

The comments came as a key industry conference heard of a range of factors likely to boost prices - such as the disappointing South American soybean harvest, the source of rival vegetable oil soyoil, and the high oil prices which encourage the use of palm oil in making biodiesel.

Demand from India, the top importer, looks set to be boosted by a disappointing domestic oilseeds harvest, undermined by the better returns to farmers offered by other crops, such as wheat, and, in some areas, poor rains.

Meanwhile, output in Malaysia, the second-ranked producing country, where land for new plantations is scarce, was set to show "more moderate growth" this year of some 400,000-500,000 tonnes, Thomas Mielke, head of consultancy Oil World, said.

'New record price'
With Indonesia set for growth of 1.6m tonnes in output, "this means a global increase of approximately 2.3m tonnes in 2012", Mr Mielke told the Bursa Malaysia Palm Oil Conference.

"This is not enough to offset insufficient production of other vegetable oils.

"I expect vegetable oil prices to appreciate in the coming months," he said, with a further rise of $80-100 a tonne in soyoil prices by the end of June, "driving up also palm oil and other vegetable oils.

Indeed, palm oil prices, "will make a new record" on the basis of calendar year average at $1,150 a tonne in Rotterdam, he said.

'Extremely tight and bullish'
A forecasts for higher prices was also supported by Dorab Mistry, an influential analyst at India's Godrej Industries, who said that the first half of the year "promises to be extremely tight and bullish", spurred by strong demand.

However, while prices were set to hit 4,000 ringgit a tonne by the end of June, price prospects for the second half of the year were more uncertain, and depended on "how production performs", Mr Mistry said.

Jonathan Fry, head of consultancy LMC International, said that Malaysian prices would average 3,250 ringgit a tonne this year, and forecast Indonesian output rising 2.4m tonnes to 27.6m tonnes.

Benchmark May palm oil closed up 0.7% at 3,266 ringgit a tonne in Kuala Lumpur.