Palm oil futures topped 2,900 ringgit a tonne for the first
time in nearly 18 months after Malaysia revealed a tumble in production of the
vegetable oil, spurring output concerns also being raised by fears for an El
Palm oil for May settled up 0.5% at 2,901 ringgit a tonne in
Kuala Lumpur, the highest close since September 2012.
The rise followed the release by the Malaysian Palm Oil
Board of data showing that Malaysian stocks of the vegetable oil fell 14.3%
month on month in February to 1.66m tonnes, the lowest since June.
The decline was fuelled by a 15.3% slump to 1.28m tonnes in
production, which put output in the second-largest producing country well behind
Malaysian exports of 1.35m tonnes, besides domestic consumption on top.
The drop in output was also bigger than expected by investors,
who had braced for a large drop in output as dryness in Malaysia and Indonesia,
the top palm oil producer, exacerbates a seasonal decline.
"Palm oil production is being hit by the exceptionally dry
weather in some parts of Indonesia and Malaysia," Edward Hugo at broker VSA
Capital said, adding that if the sparse rainfall continues, "yields will
continue to be hit for up to 18 months".
Concerns are being spurred by the growing possibility that
meteorologists are giving to the threat of an El Nino weather pattern.
"The last strong El Niño in 1997 resulted in a 17% fall in
Malaysian palm oil yields the following year," Mr Hugo said.
"A similar situation for 2014-15 would have serious ramifications
for global palm oil supply."
El Nino on the way?
On Monday, Japan's weather bureau raised above 50% its
estimate of the chance of an El Nino, linked to warmer sea-surface water
temperatures in the Pacific, developing this summer.
The El Nino predictive model predicts the sea temperatures
in the ocean area monitored for El Nino will transition from a level near
standard this spring to a higher-than-standard level this summer," the Japan
Meteorological Agency said.
El Ninos are linked to weather outcomes such as dry weather
in eastern Australia and South East Asia, and in West Africa, hurting cocoa
However, not all its outcomes are seen as negative for agricultural
production, with the weather pattern tending to bring cooler US summers deemed
supportive for corn yields.
For US soybeans, broker Jefferies Bache said that "while
sometimes the idea of an El Niño can cause concerns" about crops, data for
years with an El Nino developing during the April-June through July-September
period showed "good" yields.