POINTERS: Upcoming La Nina and 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 possible emergence of La Nina weather conditions after a strong 2015-16 El Nino event and the likely effects of La Nina on palm oil supplies and price trends.

In May 2016, the main El Nino monitoring agencies - the Australian Bureau of Meteorology (BOM) and US National Oceanic and Atmospheric Administration (NOAA) officially declared the end of the 2015 El Nino conditions in the central equatorial Pacific region.

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 started to crimp production in 2016.

Most climate models indicate that the El Nino has now entered the ENSO neutral conditions and there is a 50-75% chance that La Nina weather conditions will develop by Q3 2016.

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

How will the upcoming La Nina event affect palm oil and oilseed production in 2016 and 2017? What is the likely impact of the La Nina on palm and vegetable oil prices? Will this La Nina provide further catalyst for upward price movement in the vegetable oil complex?

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Questions & Answers (3) :

Kazmi

7 years ago

Hi A.H. ling! Thank you for your interesting paper. In your paper, you predicted that CPO prices will move to RM 2,800 by Q4 due to the impact La Nina. Will this predictions hold true if the mineral prices go down further to below USD 40 per barrel. Kindly shed some insights what will be the CPO prices behaviour thereof. Thanks

A.H. LING:
Clarification- my prediction that prices may go to RM 2800 on the back of supply tightness due to the prolonnged and lingering effect of the super El Nino. La Nina yet to be confirmed if it happen may influence 2017 prices thtough its impact on soybean production. Palm oil prices are related to crude oil in a band. Our price forecast are based on the assumption that bco will stay within the band of US 40-50/barrel. If it fall below USD 40, then prices will below lower to a lower band.
7 years ago

A.H. LING

7 years ago

La Nina usually bring above average or prolonged high rainfall which not only affect harvesting and logistic but also pollination and fruit set - therefore affecting yield some 6 months later. However, the effect is short-lived and not very significant. High rainfall during la nina generally assist recovery of palm oil yield after the El Nino.

Zulhilmi Sidek

7 years ago

Thank you for your presentation Mr Ling. How does La Nina will affects oil palm yield? Apart of harvesting process, does it also affects oil formation?

A.H. LING:
La Nina usually bring above average or prolonged high rainfall which not only affect harvesting and logistics but also pollination and fruitsets, therefore affecting OER and oil yield some 6 months later. However, the effects are short-lived and not very sugnicant on an annual basis. Historically, above average rainfall during La Nina generally assist in yield recovery after an El Nino event.
7 years ago