KUALA LUMPUR: The La Nina weather phenomenon that brings heavier rainfall than usual could be a factor that may also determine the pace of the current upward trend on crude palm oil (CPO) prices.

The higher rainfall could boost the production of oil palm trees. The severe La Nina impact that Malaysia has experienced previously was in 1999/2000 when the extra rainfall caused bumper crops then. Consequently, CPO prices slid below RM800 per tonne to a low of RM723 per tonne in December 2000 from the high of RM2,353 in September 1998.

However, the immediate impact of La Nina may lend support to CPO prices. Heavy rain will affect harvesting and cause delay on crop evacuation.

Some oil palm plantations have already seen reduction in production by as much as 15% as a result of the heavier rain in Indonesia. Should the rainfall rise further, production loss is likely to be more obvious.

“In October [last year] alone, the mean rainfall in the region was around 380mm for the month, which was above the normal average of between 150mm and 250mm per month. For the industry, such heavy rainfall would likely [have an] impact on estate road conditions, hence affecting harvesting and evacuation of crops.

“The real impact on the production of crops could only be gauged within the next five to six months,” said MKH Bhd’s plantation director Datuk Andy Lee Khee Meng.

“Despite the rainfall, we are still able to carry out our manuring activities, as we have our own methods for the application of manure. The continuity in manuring activities is important to ensure that the palms receive the necessary nutrients to sustain the production of crops,” he told The Edge Financial Daily when contacted.

Ta Ann Holdings Bhd, which has plantation estates in the central region of Sarawak, expects normal growth rates of between 8% and 10% in terms of its fresh fruit bunch production growth year-on-year.

“This is mostly due to the age profile and increase in matured area peculiar to our estates where around 3,000ha of planting carried out in financial year ended Dec 31, 2014 will cross over from immature to mature this year.

“It’s hard to say how much the current La Nina conditions will impact current year’s production as we are still in the midst of the normal monsoon wet weather season here in Sarawak at this time, which typically runs from November to February,” said the company’s representative.

Investment analysts do not foresee severe impact brought by La Nina compared with its sister El Nino, which causes longer-than-usual dry spell that stresses oil palm trees.

They do not expect the impact of La Nina on plantations in Malaysia to be as bad as what was experienced in the period of 1999/2000.

According to the Malaysian Meteorological Department, La Nina conditions, which usually follow El Nino, give rise to more cloud formation and heavy rainfall on western part of the Pacific including the Malaysian region.

On the flipside, the North and South Americas region experiences heavy rainfall during the El Nino and dry weather during the La Nina.

DBS Bank Ltd equity analyst Ben Santoso said that despite occasional heavy rains in October last year, there is no evidence of a meaningful La Nina impact that will disrupt harvesting around the palm-growing areas.

“Generally, heavy rains at night would not have much impact; but daytime heavy rainfall would somewhat affect weevils in [its]pollination process. In such cases, the impact would not show up until five to six months later.

“A strong La Nina would also cause drought in Brazil and Argentina — which would cause soybean prices to escalate on lower yields. In turn, this would positively impact palm oil prices as a close substitute to soybean oil,” he said in an email.

In a Feb 22 note on the Malaysian palm oil sector, TA Securities said that the current La Nina is considered weak, similar with the phenomenon experienced in 2007 to 2008 and 2010.

“We would only expect a moderate improvement in palm oil production this year. According to the Malaysian Palm Oil Board, Malaysia’s palm oil production is forecast to increase by 12% to 19.4 million tonnes in 2017 with stockpile to surge 7.8% to 1.8 million tonnes,” said TA Securities.

TA Securities also noted that there is normally six to nine months lagged effect on crop yields after the La Nina first starts.

Independent commodities trader Chandran Sinnasamy noted that market anticipates the February 2017 palm oil stocks to be 10% lower month-on-month to around 1.42 million tonnes.