POINTERS: Upcoming La Niña Will Lead to Higher CPO Price?

By: Mr. Ling Ah Hong

Mr. Ling graduated from the University of Malaya with a Bachelor of Agricultural Science (Honors).

He has more than 40 years of experience in research and management of plantation crops and companies. He was a former Executive Director of IJM Plantations and his other past positions include: Research Officer with FELDA, Senior Agronomist in Dunlop Estates (now part of IOI Corporation), Plantation Controller of Perlis Plantations (now part of Wilmar International), Chief Operating Officer for Hap Seng Plantations. Mr. Ling has authored and co-authored numerous publications on oil palm and cocoa in Malaysia. He is also a frequent speaker at international conferences and seminars organized by Bursa Malaysia, GAPKI, MPOC, MPOB and investment banks.

He is currently the Director and Principal Consultant of Ganling Sdn Bhd, a Malaysian-based company focusing on plantation research, consulting and investments.

GANLING specializes in weather-based palm oil forecasting, benchmarking and productivity improvement programs and performance analysis of plantation companies. Ganling is a consultant to a number of listed oil palm companies and banks in Malaysia and South East Asia and also an associate to LMC International, London, in the publication of: Oil Palm Quarterly Report – Indonesia and Malaysia.

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Weather is one of the key drivers in the production and supply of almost of all oilseeds and palm oil and a major catalyst for price movement. This paper examines the changes in climate driver (ENSO) and the re-emergence of a La Niña in late 2017 and its impact on palm oil supplies and prices.

The 2015-16 El Nino is one of the strongest events recorded in history since 1900 and has disrupted the normal rainfall patterns in South East Asia and caused widespread and severe droughts in Indonesia, Malaysia and Thailand (key palm oil producing countries which account for some 88% of the global palm oil supply). The historic droughts had stunted palm tree growth and crimped production in 2016 (-14%). The 2015 ‘super El Nino’ has led to a strong price rally in 2016 and 1Q 2017 (+66%).

Post El Nino we saw a remarkable recovery in palm oil yield and production in both Malaysia and Indonesia (+13% to +20%). The strong supply recovery in 2017 upset the supply-demand balance and triggered a roller-coaster price decline from 3Q 2017. The latest ENSO report indicated that the present neutral ENSO conditions may again develop into La Niña condition by end 2017 (70% chance).

The likely effects of this upcoming La Niña on rainfall patterns, palm oil yield and supply were analyzed (using the Ganling weather-based forecasting model).

How would the upcoming La Niña event affect palm oil and oilseed production in 2018? What is the likely impact of the La Niña on palm and vegetable oil prices? Will this La Niña provide a catalyst for upward price movement in the vegetable oil complex or for prices to head south?

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Questions & Answers (4) :

Sam Yen

6 years ago

Looking at the annual ONI severity index since 1980, severe El Ninos occur every 4-5, followed by a period of cooling off before the next spike. This would imply that we are due for a strong El Nino in 2020/21. How should palm oil firms factor this into their plantation plans? Do you think this - which appears to be a regular trend - will be disrupted by climate change patterns? If so, what impact will this have on long-term palm oil supply?

A.H. LING:
1. While it appears that there is a regular pattern, it is difficult at this stage to forecast the possible emergence of a strong El Nino in 2020/21. No two El Nino or La Nina are the same in terms of intensity and impact. 2. Palm oil like all agricultural crops is subjected to the vulgarity of weather. Our weather-based crop forecast will provide some warnings to plantation in the short to intermediate terms. 3. Not sure about climate change and its impact on long-term palm oil supply. Should the world get hotter and drier, it will have some effects on palm productivity and supply.
6 years ago

Fazleen

6 years ago

Are there any mechanisms for institutional capacity can be used to make palm oil supply more resilient to exogenous trends and shocks (e.g. adverse climate effects)?

A.H. LING:
Not sure of your question. Hope this is what you are looking for. There may be some agronomic practices which can help to mitigate the impact of adverse weather conditions on palms like drip irrigation or planting of drought tolerant palms (if available)
6 years ago

Hazlan

6 years ago

Your paper has a lot of details on Malaysia weather pattern. Do you also have the La Nina situation in USA/ Brazil to share?

A.H. LING:
We do track the general weather patterns in the USA, Brazil and Argentina but not in great details. The present La NIna conditions are expected to be weak and did not appear to have affected rainfall very much in Brazil and Argentina. Argentina did have drier condition in some areas and delayed planting but not widespread. It is too early to tell the impact of the developing La Nina on the rainfall and temperatures in the soybean belt in USA.
6 years ago

gus Lim

6 years ago

What is the typical time lag between good or bad rain to harvesting for a plantation in mature phase?

A.H. LING:
Prolonged period of high rainfall can affect production immediately (through disruption of harvesting and collection) and 5-6 months later (through poor pollination and fruit-set)
6 years ago