CEDAR FALLS, Iowa (Dow Jones)--Rainfall in Malaysian palm oil regions wasbelow normal during the first January-June 2004 and palm oil yields may bereduced from what they otherwise would have been in late 2004 and early2005, according to information from the U.S. Department ofAgriculture's Foreign Agricultural Service web site.However, based on rainfall over the past 10 quarters, Malaysian palmoil yields should to be near trend overall during the next year and ahalf. Production levels should trend higher as area under oil palmcontinues to expand at a fairly consistent rate.Rainfall in the first two quarters of 2004 averaged 139 millimetersbelow normal across Malaysia. It rained 159 millimeters per month, on aweighted average basis, during the first quarter and 167 millimeters permonth during the second quarter, that is 13 and 33 millimeters belownormal respectively, the report said. This should result in near toslightly below normal palm oil yields from October 2004 through March 2005because low rainfall reduces pollination, which reduces yield 6 to 9months after the low rainfall event.Examining the last 10 quarters, above normal rainfall was receivedduring 4 of the quarters, and below normal rainfall was received duringthe other 6 (see Malaysia Rainfall graph). As a result, output levelsshould be fairly close to trend during the next 6 quarters, but belownormal output is expected from October 2004 to March 2005. Conversely,better than normal yields are expected during July to September 2004 andfrom April to December 2005, the report said.An examination of historical yields indicates that deciding whatnormal yields are is a bit problematic. The lagged rainfall effectresulted in rather poor yields from 1997/98 to 1999/2000 when yieldsaveraged 3.63 tons per hectare, but the lagged rainfall effect resulted infavorable yields from 2001/02 to 2002/03. Additionally, there has been agenerally rising yield trend since 1991/92, as improved varieties ofplanting material have becomeavailable to oil palm plantations.The Malaysia Palm Oil Board has released area-under-oil-palm-data for2003, indicating that area expansion is continuing at about the same levelas in previous years. The Board put mature area at 3.30 million hectares,up 115,000 hectares from 2002. The growth in area was 183,000 hectares in2002 and 63,000 hectares in 2001. Mature area increased an average of128,000 hectares per year over the last ten years. Immature area is areathat has been planted but has not yet begun to produce fruit. It takes 3to 4 years from planting until palm trees are mature enough to producetheir first fruit bunches. Total area under palm, mature and immature, was3.80 million hectares in 2003. Total area increased 132,000 hectares in2003 compared to a 10-year- average growth of 150,000 hectares.Using Malaysian rainfall data, yield for 2003/04 (Oct.-Sept.) isestimated by the Malaysia Rainfall Regression Model (MRRM) at 4.00 tonsper hectare, which is above the 5-year-average of 3.91 tons per hectare,but below the 10- year trend of 4.20 tons per hectare. This projectionwould give a production level of 13.2 million tons (using a harvested areaof 3.30 million hectares), with one quarter remaining in the marketingyear. The projected level is less than USDA's August forecast of 13.4million tons. The USDA is giving credit to increased fertilizerapplications and the use of improved selections of oil palm for higheryields that have been seen recently. The MRRM projects yield for 2004/05at 3.77 tons per hectare, and that would give a production level of 13.0million tons using harvested area projected at 3.46 million hectares.This is less than the 13.8 million tons forecast by USDA in August.Note: The MRRM linear regression model uses rainfall lagged 3quarters, 1- year cumulative rainfall lagged 6 quarters, and time asindependent variables regressed against yield. Because of thecharacteristics of linear regression, the model continues to increaseprojected yields even as rainfall becomes excessive; thus, the model tendsto overstate yield when average monthly rainfall lagged 3 quarters isabove 300 mm, and understate yield when rainfall is optimal. A variety ofinformation sources are used in determining official USDA estimates forMalaysian palm oil.