21/04/2010 (Agri Money) - The hangover from dry weather, and a persistent shortage of plantation workers, should put an end to a surprise recovery in Malaysia's palm oil production.

Oil World, the influential analysis company, has dismissed as a blip a recovery to 1.39m tonnes in Malaysia's palm oil output in March, up 20% month on month.

The group stood by forecasts of "limited upside" for palm oil output in the world's second largest producer of the vegetable oil, behind Indonesia.

"While production turned out surprisingly high in March, we are sceptical whether this trend will continue in the near- to medium-term," it said.

"We consider it likely that palm oil output will be curbed in coming months by the recent dry spell, the downturn in the biological yield cycle and partly by a shortage of labour."

Production cycle

Malaysia's March palm oil data took the market by surprise when they were released last week, prompting a fall of more than 2% in Kuala Lumpur prices on the day, and entrenching a downward run which has depressed values of the vegetable oil a further 2% since.

Malaysia March palm oil dynamics, changes on month and (March 2009)

Output: 1.39m tonnes, +19.9% (+8.7%)

Stocks: 1.65m tonnes, -7.5% (+21%)

Exports: 1.39m tonnes, +7.6% (+10.5%)

Source: Malaysian Palm Oil Board
 
While Malaysia's palm oil output typically begins an upward cycle in March, to a peak towards the end of the year, the revival this time was notably sharp. Last month was the strongest March for production for at least three years.

Many palm oil producers have complained of a shortage of manpower, blamed largely on restrictions on foreign workers.

Furthermore dry weather curtail the development of the female flowers which go on to produce the oil-rich palm seeds, meaning that the hot spell in February and March may yet make itself felt in some four months' time, a period typically at the peak of the production cycle.