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Second Half 2015 - Anticipating Market Price Direction:
Impact of El Nino on Global Palm and Vegetable Oil Supply - A Major Catalyst for Price Recovery?
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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 elements in the production and supply of almost of all oilseeds and palm oil and a major catalyst for price movement. Not too long ago, towards the end of Q1 of 2014, there were growing evidence and concern on the emergence of an El Nino which could potentially alter the supply equation of oilseeds and palm oil. This concern had led to a temporary spike in palm oil prices in March-April 2014. The seriousness of this situation did not play out as envisaged as the threat of a full blown El Nino did not materialised.
However, El Nino- like conditions continue to persist into early 2015. In May 2015, the key El Nino monitoring agencies like BOM and NOAA confirmed the presence of El Nino conditions in the tropical Pacific region. All international climate models suggest an 80-90% chance that the El Niño will persist until at least the end of 2015. Models also indicate that further warming is likely to extend into Q1 2016. El Nino usually results in drier and below average rainfall or prolonged droughts in the key palm oil producing countries like Indonesia,
Malaysia and Thailand (which account for some 90% of the world’s production). The effects of adverse weather conditions especially rainfall in recent years on palm oil yield and supply and prices were analyzed (using the Ganling's weather-based forecasting model).
Palm oil production were significantly affected by the El Nino events in 1982/83, 1986/87, 1991/92 and 1997/98. The last El Nino event from June 2009 to April 2010 resulted in prolonged dry weather conditions in many parts of Indonesia and Malaysia (world's major palm oil producers) which, in turn, resulted in significantly lower palm oil supply to the world in 2010.
Malaysia suffered a decline in production of -3.9% (y-o-y) while Indonesia registered a significantly lower production growth of 4.8% (y-o-y) compared to 12.3% (y-o-y) growth registered in 2009. The El Nino also affected oilseed production in India and Pakistan. The supply disruption led to a spike in prices of palm oil from 4Q 2010 to Q1 2011.
How will the newly confirmed El Nino event affect palm oil and oilseeds production in the coming months? International climate models also indicate that there is a possibility of this El Nino reaching a strong level. What will be its likely impact on palm oil supply should it develops into a severe El Nino like the 1997/98 event (which caused major disruptions to agricultural production including palm oil and oilseeds)? Will this El Nino provide a catalyst for a price recovery in 2016? This paper will examine the various developing scenarios and impact on palm oil supply and outlook.
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Second Half 2015 - Anticipating Market Price Direction |
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MITIGATING THE NEXT WAVE OF MARKET UNCERTAINTIES Nov 14, '22 ~ Nov 18, '22 |
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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS Mar 28, '22 ~ Apr 01, '22 |
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Section 2: Opportunities for Palm Oil in Asian Market Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Oils & Fats Supply, Demand and Outlook Oct 18, '21 ~ Oct 24, '21 |
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Section 1 : CPO Price Trend Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Global Palm Oil Market Opportunities Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Special Focus Aug 19, '19 ~ Aug 25, '19 |
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Section 1 : CPO Price Trend Aug 19, '19 ~ Aug 25, '19 |
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Section 1: CPO Price Trend Feb 18, '19 ~ Feb 24, '19 |
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Section 2: Global Palm Oil Market Focus Aug 06, '18 ~ Aug 12, '18 |
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Section 1: CPO Price Trend Aug 06, '18 ~ Aug 12, '18 |
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Section 2 : Global Palm Oil Market Focus Jan 29, '18 ~ Feb 04, '18 |
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Section 1: CPO Price Trend Jan 29, '18 ~ Feb 04, '18 |
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Section 2: Regional Focus : CIS Countries Aug 21, '17 ~ Aug 27, '17 |
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Section 1: Palm Oil Price Fundamentals Aug 21, '17 ~ Aug 27, '17 |
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Section 2: Market Challenges and Opportunities Feb 20, '17 ~ Feb 26, '17 |
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Section 1: Price Directions Feb 20, '17 ~ Feb 26, '17 |
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Section 1 : Palm Oil Price Fundamentals Aug 22, '16 ~ Aug 28, '16 |
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Section 2 : Trade Issues and Market Prospects Aug 22, '16 ~ Aug 28, '16 |
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2016 Market Direction - Twists and Turns of Palm Oil Prices Feb 22, '16 ~ Feb 29, '16 |
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Second Half 2015 - Anticipating Market Price Direction Aug 17, '15 ~ Aug 23, '15 |
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Special Focus: Indian Sub-Continent Aug 17, '15 ~ Aug 23, '15 |
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Opportunities, Challenges And Trend In 2015 CPO Price Feb 23, '15 ~ Mar 01, '15 |
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2nd Half 2014: Market Challenges, Predictions And Directions Aug 25, '14 ~ Aug 31, '14 |
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Anticipating 2014 Palm Oil Price Direction Feb 17, '14 ~ Feb 24, '14 |
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Prospects For Second Half Of 2013 - Managing Price Fluctuations Jul 22, '13 ~ Jul 29, '13 |
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Mapping The Palm Oil Price - 2013 Market Perspective Feb 18, '13 ~ Feb 27, '13 |
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Palm Oil : Challenges, Opportunities And Latest Market Directions Aug 06, '12 ~ Aug 17, '12 |
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2012 Price Direction, Issues & Challenges Feb 13, '12 ~ Feb 20, '12 |
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Challenges, Opportunities And Latest Price Trend Aug 08, '11 ~ Aug 16, '11 |
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Challenges, Opportunities And Price Direction Feb 07, '11 ~ Feb 17, '11 |
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2010 Year End Prospects - What Lies Ahead? Aug 02, '10 ~ Aug 08, '10 |
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The answer is on page 3 under "A strong El Nino in the making" and " Early signs of dryness in South East Asia" in the full report. In Figure 2 the IRI/CPC prediction is that the Nino 3.4 SST anomaly is likely to exceed 2 degree C - indicating high probability of a strong or severe El Nino. The latest NOAA report released on 17 August suggest further strengthening of the El Nino. The disruption of normal weather conditions, like warmer and below average rainfall in part of South East Asia and India and flooding in Pakistan and Mammar and unusual typhoons in East Asia, are already underway and suggest evolution of a strong El Nino.
8 years ago
Thanks Mr A.H. Ling
8 years ago
El Nino was officially declared in May 2015 by the key monitoring agencies like BOM and NOAA. As the El Nino evolves and strengthen, there will be warmer (or above average temperatures) and prolonged dry weather (or below average rainfall). We have seen these conditions in part of Sabah, Peninsular Malaysia and Sumatra and we are starting to see below average rainfall in June and July in part of Kalimantan. The presence of multiple unopened leaves or spears in the fields indicate severe water stress in palms. These are early signs of the impact of El Nino in key oil palm growing regions.
8 years ago
1. Pollination to harvesting - 5 to 6 months 2. Oil is formed mainly to toward the last 2 months of the bunch formation. 3. El Nino - reduce yield through preferential formation of male flowers, floral abortion (less bunches) and poor pollination and fruit-sets (mainly less fruitlets). 4. La Nina - reduce yield through poor pollination and fruit-sets (both less fruitlets per bunch and less oil content).
8 years ago
A good irrigation or drainage system can only mitigate the impact of adverse weather like El Nino or La Nina but will not be able to eliminate its full impact. During an El Nino, there is an increase in air temperature and evapo-transpiration and that may limit the full recovery of yield through irrigation. There is also the question of adequate water and storage during drought periods. Irrigation has been reported to be fairly successful in raising yield in areas with definite dry periods - in South Thailand by Univanich and semi-commercial work in Negri Sembilan and Pahang by Felda. I believe that there is scope for drip irrigation to increase yield in areas prone to prolonged drought but the economics need to be carefully studied.
8 years ago
Thank you. Am still monitoring the evolution of the El Nino and its impact on rainfall deficit which is the key to production forecast.
8 years ago