El Nino to Cut Palm Output in Top Growers This Year, Olam Says

  • Palm futures reached a 2-year high in March on supply squeeze
  • La Nina seen having weaker impact on production, prices: CEO

Palm oil production in Indonesia and Malaysia will probably drop in 2016 as El Nino-linked dry weather hurts crops in the world’s biggest growers, according to Olam International Ltd.

Crude palm oil output in top producer Indonesia will drop 2 million metric tons, Chief Executive Officer Sunny Verghese said during an earnings briefing on Friday. Production in Malaysia will decline by about 1.2 million tons, he said.

Palm oil, used in everything from chocolate to cosmetics and biodiesel, reached a two-year high in March as El Nino curbed production. Stockpiles in Malaysia dropped to a 14-month low in April with production the lowest for the month since 2012. Futures in Kuala Lumpur were trading at 2,592 ringgit a ton on Friday, up 4.3 percent this year.

“The impact of El Nino on palm oil production has been crystallized,” Verghese said in Singapore. “Near term, we’re friendly on the edible oil complex and the palm oil complex in general, but most of the news on fundamentals have already been priced in.”

In February, he said inventories will probably shrink in the second quarter as about 1.5 million tons to 2 million tons of production is lost to El Nino, which triggered droughts in Southeast Asia. Indonesia and Malaysia together account for about 86 percent of global palm oil supply.

While palm oil will continue to be supported by biodiesel programs in Indonesia and Malaysia, production and prices are less likely to be impacted by La Nina, Verghese said Friday. Olam, one of the world’s largest food traders, reported first quarter profits tripled after sales volumes increased and as the company reported lower exceptional losses.

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