Why is Malaysian palm oil production declining?

Palm oil production is set to decline for the fourth consecutive month in December as heavy rain affected harvesting in Malaysia, according to the Malaysian Palm Oil Board (MPOB).

Malaysia is the second largest producer of palm oil in the world.

Lower production is likely to impact inventories and boost futures of palm oil, which are already around their highest levels in more than two and a half years.

Ahmad Parveez Ghulam Kadir, director-general at the MPOB told: “We estimate a potential reduction of around 5% to 8% in crude palm oil (CPO) production under normal circumstances”.

He also said that in case of severe flooding in the country, the loss of production could be around 10%-20%.

The northeastern coast of Malaysia and southern Thailand have been hit by torrential rains.

Rains have caused floods, resulted in dozens of casualties and damaged thousands of acres of rice crops.

Malaysian Prime Minister Anwar Ibrahim had earlier said that the rains were beyond expectations.

Some east coast areas in Malaysia received six months’ worth of rainfall between November 26 and 30, according to Reuters.

In November, Malaysia’s crude palm oil production declined sharply due to heavy rains.

Production fell nearly 10% on a month-on-month basis to 1.62 million tons.

This was the lowest for a month since 2020, according to a MPOB’s report.

More rainfall has been forecast in the coming days, which could affect crops further.

The Malaysian Meteorological Department on Friday said a few states could receive continuous rainfall from December 16 to 19.

The Malaysian board has been closely monitoring the situation as the weather department has also projected a second wave of floods due to heavy downpour.

Heavy rainfall could further damage plantation infrastructure, such as roads and bridges.

It would be difficult for farmers to harvest as well as transport fresh fruit branches from estates to mills, Kadir added.

In December of last year, the country had harvested 1.55 million tons of crude palm oil.

However, production this December could be significantly lower than that of last year, Malaysian palm oil producer as saying in its report.

Palm oil typically trades at a discount to soybean oil and sunflower oil.

However, it is currently at a premium over these competing oils due to limited stockpiles and supplies.

Prices could remain at a premium to these oils, which could also affect demand and shift preferences.

Tags: MPOB, Crude palm oil, Production, Malaysia, palm oil, heavy rain, stockpiles, Malaysian Palm Oil Board, flooding, sunflower oil, demand, soybean oil