MUMBAI, Aug. 30. (Asia Intelligence Wire) - LOWER rainfall and lower thanexpected area have rendered the palm oil production outlook weak for theensuing year 2002-03 (October to September).Malaysian monthly average rainfall was 161 mm, some 39 mm below normal inthe second quarter of 2002, and so has now been below normal for 4 out ofthe last 5 quarters. The less than normal rainfall is likely to negativelyimpact palm oil yields for the 2002-03 marketing year.On the basis of Malaysian rainfall data, the US Department of Agriculture(USDA) has used the Malaysian Rainfall Regression Model to forecast yieldfor next year at 3.69 tonnes per hectare, well below 4.06 t/ha seen in2000-01 and marginally below the 5-year average of 3.76 t/ha. For 2001-02,the yield forecast is 4.01 t/ha.This projection is likely too high because the excessively high rainfallof 363 mm in the fourth quarter of 2001 may have reduced pollinationlevels and will reduce yields in the third quarter of 2002 below what themodel is projecting, USDA said.The Malaysian Palm Oil Board came out with an estimate of mature palm oilarea in 2001 of 3.01 million hectares (mha), 310,000 ha lower than hadbeen expected. As a result, mature area in 2001 increased just 63,000 hafrom 2000, less than the 128,000 ha average increase over the previousfive years.Slow increase in area can be attributed to the replanting programmeimplemented by the Malaysian Government. The programme that began in July2001 and finished in June this year was instituted to encourage producersto replace stands of trees that were more than 25 years old.Trees in 198,000 ha were cut under the replanting programme which offeredfarmers Malaysian ringgits 1,000 (US$ 263) for each hectare of land thatwas cut.Using the estimated area of 3.07 mha and model yield projection of 3.69t/ha (statistically) implies output of 11.3 mt. of crude palm oil for2002-03. However, the official USDA forecast is higher at 11.8 mt.For the current year, the model implied output using area estimated at3.01 mha, is 12.0 mt, which is higher than the official USDA estimate of11.7 mt.What all this means is that Malaysian palm oil production growth in2002-03 will be far from robust and supplies will tighten. To what extentslowdown in Malaysian output will be at least partially neutralised byIndonesia remains to be seen.It is important to remember that global vegetable oil supplies in 2002-03will show only a moderate growth caused by lower output of high oilcontent oilseeds (mainly rapeseed) and below trend growth in palm oilproduction.Demand growth prospects next year are not expected to be bright. Oncurrent reckoning, consumption is projected to grow by a modest 1.5 percent (as against the strong 3 per cent plus of recent years). However,even this modest growth in use will lead to tightening of supplies withimplications for price.For the short run, it may be noted that August and September are peakproduction months in Malaysia. Palm oil price movement will be impacted toa considerable extent by Indian purchases and tariff changes.

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