20 February, 2002 (Business Times) - THE crude palm oil (CPO) market looksset to sizzle this year as output suffers under the extremes in weatherconditions attributed to the El Nino phenomenon.The last time El Nino made its presence felt in the country was inearly-1998, when dry spells saw CPO production plunge and prices surgepast RM2,000 a tonne.If the hot spell and the bush fires of the last few days are bad, waittill the second half of the year, the experts are now warning. Already,the country had been experiencing a rainless period of six consecutiveweeks.And traders are expecting El Nino to again cause widespread droughtconditions in Malaysia, which may sufficiently affect production to causea rally in prices of the commodity to heights not seen in four years.“It will be a boon for the CPO market... low moisture content in theatmosphere during the period will see lower yields and production,” atrader told Business Times.The El Nino effect refers to a sustained warming of a large part of thecentral and eastern Pacific Ocean, first noted in the seas off Peru inSouth America. It seems to recur every four to seven years and typicallylasts 12 to 18 months.In the previous occasion, drastic changes in weather patterns across muchof the Pacific Basin, including Malaysia, were experienced.Malaysian Palm Oil Association chief executive M.R. Chandran said shouldthe El Nino indeed set in, fresh fruit bunches (FFBs) yield, depending onarea, could be reduced by as much as 20 per cent.“During a dry spell, moisture content in the air and in FFB will be lowerthan normal causing the palm flowers to have a higher than normal abortionrate.“Instead of producing fully mature FFBs in the normal five to six months,it could take seven to eight months,” he said.“As such, a grower who normally produces 20 tonnes of FFB per ha mayexpect 18 tonnes at best.”In 1998, CPO production totalled 8.3 million tonnes and prices averagedRM2,378 a tonne.Atmospheric precipitation returned to normal levels in the following year,and output of the commodity surged to 10.55 million tonnes, 10.80 milliontonnes and 11.803 million tonnes in 1999, 2000 and 2001, respectively.And plantation companies would not be too unhappy should El Nino comesa-calling in the months ahead, traders said, noting that although theywould be selling lesser amounts of CPO, their fall in revenue would bemore than offset by an increase in prices from the current RM1,100-RM1,200a tonne level.Chandran however pointed out that the supply crunch would not be immediateand the sector has also to take into consideration the possible differencein impact of changes in weather patterns on the other 16 edible oils.“If output of other oils, in particular soyabean oil, goes upsignificantly, CPO prices may not benefit too much from a decline in itsown supply.“In any case, El Nino is usually heralded by a high occurence of forestfires in the region, especially in Indonesia. We have yet to hear any suchreports,” he said.Affin-UOB meanwhile said in a research note that CPO output can beexpected to fall in the near term not only because of the drier days, butalso due to factors like tree stress from the last few years of strongyields as well as last year’s replanting activities and reduction infertiliser use.The research house said expects CPO prices to average RM1,250 a tonne thisyear, compared to RM2,482 a tonne in August 1998.Malaysian Meteorological Services Department director general Chow Kok Keesaid it is still too early to say that the current dry spell marks thebeginning of the El Nino effect.“The department and scientists all over the world are monitoring thesituation and so far signs, like a marked increase in ocean temperature,are still absent.“The current dry spell is a normal yearly occurence because Malaysia isapproaching the end of the north-east monsoon season which is dry,” saidChow.He added El Nino is a large-scale phenomenon that affects the whole of thePacific Basin and does not happen overnight.“It will take many months before we can actually be sure if the effects ofthe El Nino are indeed setting in,” he added.Meanwhile, third-month May CPO futures on the Malaysia DerivativesExchange closed RM2 a tonne lower at RM1,160. Volume was heavy at 1,939lots.