Heavy rains have hit Malaysia’s palm oil output for the second time this year, with the Malaysian Palm Oil Board warning of a potential reduction in production. The floods have caused damage to homes, transport links, and thousands of acres of rice crops, resulting in dozens of deaths.
Peninsular Malaysia, particularly its northeastern coast, and southern Thailand have been affected by torrential rains that caused floods, resulting in the deaths of dozens of people and damage to homes, transport links, and thousands of acres of rice crops.
Malaysian Prime Minister Anwar Ibrahim’s Statement
The Malaysian Prime Minister stated that the rains were far beyond expectations, with some east coast areas receiving more than six months’ worth of rainfall between November 26th and 30th.
Impact on Palm Oil Production
In November, Malaysia’s crude palm oil (CPO) production declined by 9.8% from the previous month to 1.62 million metric tons, the lowest for the month since 2020, according to the Malaysian Palm Oil Board (MPOB).
Forecast for December
The Malaysian Meteorological Department (MET) has forecasted a second wave of floods due to heavy rainfall, which could further damage plantation infrastructure and reduce palm oil production.
Potential Reduction in CPO Production
Ahmad Parveez Ghulam Kadir, director-general at the MPOB, estimated that there could be a potential reduction of around 5% to 8% in CPO production under normal circumstances. However, if severe flooding persists, the reduction could reach as high as 10% to 20%.
Impact on Palm Oil Prices
Lower output in Malaysia would curb inventories in the country and further boost benchmark futures, which are already near their highest levels in about 2-1/2 years.
Current Market Situation
Palm oil usually trades at a discount to soybean oil and sunflower oil but is currently at a premium over these competing oils due to limited supplies.
Malaysia’s Palm Oil Production Expected to Fall for the Fourth Consecutive Month in December
Heavy Rains Cause Flooding and Damage
Heavy rains could further damage plantation infrastructure, such as roads and bridges, making it difficult to harvest and transport fresh fruit bunches from estates to mills. In November, Malaysia’s CPO production declined 9.8% from a month ago to 1.62 million metric tons, the lowest for the month since 2020.
Palm Oil Trades at a Premium Due to Limited Supplies
Palm oil usually trades at a discount to soybean oil and sunflower oil, but is currently at a premium over these competing oils due to limited supplies. Malaysia harvested 1.55 million tons of CPO in December 2023, but production this December could be far lower than last year, said a Malaysian palm oil producer who did not want to be named.
