Palm Oil Output in Indonesia Seen Hurt by Golden Agri on El Nino

Palm oil production in Indonesia, the world’s largest grower, will probably be less than a forecast this year with the emergence of an El Nino set to cause more damage in 2015, according to the country’s largest producer.

Output may be 5 percent to 10 percent less than the company’s 30 million-metric-ton estimate for this year, said Franky Widjaja, chief executive officer of Golden Agri-Resources Ltd. The country produced 26 million tons in 2013, according to the Jakarta-based Indonesian Palm Oil Association.

Futures in Kuala Lumpur surged to an 18-month high in March as the most-severe drought in 17 years threatened supplies from Indonesia and Malaysia, which account for 86 percent of global output. Forecasters from the U.S. to Australia are strengthening predictions for the arrival of an El Nino in 2014, and Goldman Sachs Group Inc. last month listed palm oil among the crops that could be hurt.

“El Nino will develop in the second or third quarter. The impact will be next year,” Widjaja told reporters in Jakarta today. The extent of the impact will depend on the severity of the weather pattern, he said.

During the first-quarter dry spell futures on the Bursa Malaysia Derivatives rallied to 2,916 ringgit ($897) a metric ton in March, the highest price since September 2012. The benchmark traded at 2,665 ringgit by 5:09 p.m. in Kuala Lumpur today. The drought in January and February was the worst in parts of Sumatra and Peninsular Malaysia for that period since 1997, Donald Keeney, a meteorologist at MDA Weather Services in Gaithersburg, Maryland, said April 24.

El Nino

Indonesia sees a weak El Nino to start developing in August or September, Andi Eka Sakya, head of Meteorology, Climatology and Geophysics Agency, said April 29. The weather pattern won’t be as massive as 1997-1998 and will have limited impact to agricultural crops, he said. At that time Indonesian production dropped 7.1 percent and Malaysian output fell 5.5 percent, U.S. Department of Agriculture data show.

Drought has a delayed impact on the bunches of cherry-sized palm fruits which are harvested all year round. Output would start dropping about six months after the tropical plants are deprived of sufficient moisture, Joelianto, trading director in Jakarta at PT Sinar Mas Agro Resources & Technology, a unit of Golden Agri, said April 25.

A potential El Nino may extend dry conditions in Southeast Asia, which would have “major repercussions on palm oil production in 2015 and 2016,” according to Oil World, a Hamburg-based industry researcher.

Shares in Golden Agri, listed in Singapore, have advanced 13 percent to 61.5 Singapore cents this year. PT Astra Agro Lestari, Indonesia’s biggest listed plantation company by market value, has risen 18 percent to 29,675 rupiah in Jakarta.

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