El Nino to worsen

PETALING JAYA: As the ongoing El Nino worsens, Southeast Asian oil palm planters can expect a drop in fruit harvest and an increase in palm oil prices.

The El Nino drought across Asia Pacific is seen to worsen in the weeks ahead and Sabah's east coast is likely to experience severe dryness, said Malaysian Meteorological Department National Climate Centre director Jailan Simon.

“Historical records show the impact of a strong El Nino is normally felt by Malaysia towards the end of the year and the first quarter of the next year,” he said at a seminar organised by the Malaysian Palm Oil Council here yesterday.

"As El Nino intensifies, we will see temperatures rising above 35 degrees Celcius. 

A further temperature rise by two degrees Celcius can result in scorching heatwaves," he added.

When asked to comment on the ongoing haze that had enveloped the skies last week, the weatherman gave his assurance that sporadic inter-monsoon winds and drizzle are seen to reduce the haze effect in Peninsular Malaysia.

Also present was CIMB Investment Bank senior analyst Ivy Ng. She noted the last El Nino was in 2009/10 and it was moderate. 

"The most severe impact of El Nino is felt between December and April because the equatorial Pacific sea-surface temperatures are normally warmest at this time of the year," said Ng.

She concurred with Jailan that the current El Nino could last until the first quarter of 2016. "The lower rainfall will result in weaker palm oil yields and output on a lagged basis." 

Moreover, Ng highlighted that India, the world's largest edible oils importer, tends to buy more  palm oil whenever El Nino dries up farmland. This is because lower oilseed harvest in India will increase its dependence on palm oil imports.

She went on to say palm oil prices tend to react positively whenever the El Nino phenomenon is experienced. "In the last nine episodes since the 1980s, the average palm oil monthly price rose by between 13 and 40 per cent."  

Palm oil futures have been hovering between RM2,000 and RM2,250 per tonne for the past three weeks. Yesterday, the third month benchmark palm oil futures on Bursa Malaysia Derivatives closed RM32 higher at RM2,183 per tonne.

An agronomist at the seminar agreed with Ng that the ongoing drought will slow down palm oil growth output and thus support prices. Consultant Ganling Sdn Bhd director Ling Ah Hong noted the El Nino drought stresses the oil palm trees.

Planters can expect more bunch failures, floral abortion and gender differentiation. "So far, we're seeing parched soil in south and east Kalimantan, multiple unopened spears in palms planted across Kalimantan. Towards the south of Borneo island, we're seeing more male flowers," he said.

Ling then said palm oil prices may recover by the end of first quarter or early second quarter of 2016 when the impact of El Nino starts to bite.