POINTERS: Weather – New Catalyst Impacting Palm Oil 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.

The 2015 El Nino is rated as one of the strongest events recorded in history. The 2015 ‘super El Nino’ severely affected palm oil growth and global production and resulted in a strong price rally in 2016 and 1Q17 (+66%).

The strong supply recovery (post El Nino – followed by two weak La Nina) in 2017 and 2018 triggered a price decline from 2Q17 onwards leading to the current bear cycle (- 44%).

We have been in this bear cycle for some 18 months or so now. Prices have started to rally sharply since November 2019 (+33%) on the back of potential supply deficit and increased demand from domestic biodiesel usage in Indonesia and Malaysia in 2020.

Are we still in the bear grip or the start of a new bull cycle? Is the recent sharp price rally sustainable?

This paper examines the changes in climate driver (ENSO) and the re-emergence a weak El Nino in 2019. Most climate models indicate that the El Nino has now entered the neutral ENSO phase with the possibility of moving into another El Nino toward the end of 2020.

How would the 2019 El Nino conditions affect production and supply of palm oil in 2020? What is the likely impact of an emergence/non emergence of another El Nino in 2020 on palm oil supply and prices? Will an upcoming El Nino provides further catalyst for upward movement of prices in the vegetable oil complex?

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Questions & Answers (5) :

Anthony Yap

3 years ago

Refer Page 1; Post El Nino 2017/18 brings us 18 months bear cycle. As from your observation from the historical data, what was the average bull and bear cycle during El Nino and Post El Nino?

A.H. LING:
Historically, the El Nino-La Nina led average bull and bear cycle lasted about 4.2 years (50 months) - shortest is 3.3 years (40 months) and longest was 4.8 years (58 months).
3 years ago

George Teh

3 years ago

"Dear Mr Ling, please define "late El Nino" - is it defined as El Nino onset starting in Q3 or Q4? In addition, please elaborate on the relative probability of El Nino vs La Nina in any given cycle. Is there a layman's formula to guesstimate El Nino and La Nina occurrence probability - e.g., does an x% probability of El Nino occurrence imply a (1-x)% probability of La Nina? Thank you."

LING AH HONG:

1. El Nino or La Nina tends to develop during the period Apr-Jun and peak in Oct-Feb (following year). Late El Nino refers to onset during Sep-Dec period.

2.El Nino Southern Oscillation (ENSO) comprises of El Nino, Neutral and La Nina. The relative probability of El Nino is a composite of El Nino, Neutral and La Nina - add up to 100%. The relative probability of occurrence of each phase is calculated by climate scientists from the CPC for each forecast month. The official CPC probability forecast is a consensus of all the monitoring agencies.

3. Sorry, no layman's formula to guesstimate el Nino and la Nina occurrence probability.

3 years ago

Melody Loke

3 years ago

Scientifically, how do you explain your claim that EL Nino’s effect on palm depends on age profile of the oil palm tree. Appreciate your agronomist knowledge. Can you explain why is that El Nino will result in the drop in yield drop while La Lina increases oil palm yield

A.H. LING:
1. Age profile of palm is one of the key determinants of yield level and therefore output. In weather-based crop forecasting, the age profile and planted area will determine the potential production before impact of weather. 2. Oil palm is a water loving plant and required adequate supply of moisture for optimum production. El Nino usually bring hot and prolonged dry weather/drought to South East Asia. Prolonged dry weather will reduce yield through bunch failure, floral abortion and prolonged male flowering phase. On the other hand, La Nina usually bring above average rainfall and therefore adequate supply of moisture for optimum palm growth and production. La Nina following El Nino enhances recovery of palm yield.
3 years ago

Nur Sophia

3 years ago

Can you please explain how Malaysia weather pattern will change quarter by quarter in 2020?

A.H. LING:
Not sure of your question - how weather pattern will change quarter by quarter in 2020. I presume you are referring to rainfall pattern. Rainfall are recorded and analysed daily, monthly or yearly - seldom quarterly. I am afraid I am not able to give you a definite answer. Different regions in Malaysia have different long-term average (LTA) monthly rainfall patterns. El Nino or La Nina can change/disrupt the normal LTA pattern. Should an El Nino is confirmed in the 2H 2020, it will most probably result in lower than average rainfall during the El Nino period.
3 years ago

Jessie Fan

3 years ago

Good day Mr Ling, What is the percentage that El Nino will emerge in 2020 and if it occur, the impact will effect production in the year of 2021? Thank you. JF

A.H. LING:
Scientists working on a new forecasting model in Potsdam Institute indicated the return of El Nino in 2020 with an 80% probability. If the late El Nino is confirmed, the impact on production will most probably in 2021.
3 years ago