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Drought damage lingers in REA's palm plantations

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The Indonesian palm oil producer REA Holdings reported sharply lower palm oil production so far this year, as the effects of last year's drought in South East Asia continue to affect production.

REA reported a palm fruit crop of 225,171 tonnes in the first half of 2016, compared to 277,216 tonnes in the same period last year, "mirroring lower crops throughout East Kalimantan following the severe dry periods".

The availability of palm fruit purchased from third party producers was also down, at 48,249 tonnes, compared to 68,120 tonnes last year.

The grower saw palm fruit crops "remaining at depressed levels during July and August".

But REA said that with better rainfall so far this year, as well as a new fertilizer regime, "there is every reason to expect that cropping will be restored to more normal levels in 2017".

Falling revenues

REA's revenues fell by 15% year on year, to $39.3m, over the first six months of 2016, thanks to lower volumes and prices.

But the company made a pre tax loss of $5.2m, slightly better than the $5.5m loss over the same time last year.

And REA was upbeat on prospects for the rest of the year.

"The recovery of crude palm oil prices to more remunerative levels will be beneficial to the group in the second half of 2016," REA said.

REA shares were down 1.1% in afternoon deals in London, at 241.24 pence.

Expected fall in prices

Ed Hugo, at VSA Capital, said the fall-off in production was "well flagged and is reflected across the wider palm oil industry".

"As with peer MP Evans, June's production was worse than the first five months of the year, highlighting the continued influence of El Nino on its yields," Mr Hugo said.

But Mr Hugo flagged REA's rate of planting, which is reported to be on target to reach 6,000 hectares this year.

This would be well in advance of the company's previous annual record of 4,829 hectares, reached back in 1998

Price prospect remains subdued

VSA remains "cautious" on palm oil price prospects, Mr Hugo said, noting the "large, high quality US soybean crop now being harvested," as well as the seasonal uptick in palm oil production.

But Mr Hugo struck a more upbeat noted for next year, noting that "if the production shortfalls forecast by some companies are reflected across the wider industry, then this could take the market by some surprise".

December crude palm oil prices in Malaysia were down 2.2%, at 2,606 ringgits a tonne.

By William Clarke

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