Possibility of La Nina in 2H24 spells trouble for planters

KUCHING (July 8): The possibility of La Nina occuring in the second half of this year (2H24) will spell trouble for plantation sector players, particularly for palm oil.

According to the World Meteorological Organisation (WMO), the El Nino event of 2023/24, which contributed to a surge in global temperatures and widespread extreme weather events, is showing signs of tapering and a shift to La Nina conditions is expected later this year.

The WMO predicts a 50 per cent likelihood of either neutral conditions or a transition to La Nina from June to August 2024.

Analysts with TA Securities Holdings Bhd (TA Research) saw that the probability of La Nina conditions rises to 60 per cvnt from July to September and further to 70 per cent from August to November.

However, there remains considerable uncertainty regarding the intensity and duration of these conditions.

“In Malaysia, the Malaysian Meteorological Department (MetMalaysia) predicts that the La Nina phenomenon will begin between July and September this year.

“Based on international forecast models, this event is likely to persist for a duration ranging from 5 to 18 months, with expectations of it being relatively weak to moderate in intensity,” it said in its second half of 2024’s outlook for Malaysian sectors.

To recap, the previous episode of La Nina, which began in 2020 was initially projected to last for a year, unexpectedly ended in early 2023.

La Nina typically brings more rainfall and prolonged heavy rains over several days can trigger flooding in low-lying areas that are prone to such occurrences.

This could potentially disrupt palm oil production in the short term, as the heavy rain and floods are likely impeding harvesting progress and causing delays in evacuation.

However, TA Research noted that the above-average rainfall is also expected to contribute to a significant increase in palm oil production in the 1H of 2025.

“Additionally, the ease of labour shortages is anticipated to further boost CPO production,” it said. Nevertheless, it is important to note that the precise impact of La Nina on CPO prices can vary depending on factors such as its intensity, duration, the timing of its development, and its interaction with other climate variability patterns.”

In Malaysia, CPO production during the first five months of 2024 grew by 9.4 per cent y-o-y, reaching 7.26 million tonnes. Year to date, the FFB yield increased by 11.1 per cent month on month to 6.20 tonnes per hectare.

Production improvements can be expected in the second half of 2024 due to the ease of foreign labour shortages and favourable weather patterns.

All in, the CPO production for 2024 is projected to reach 20.2 million tonnes, marking an 8.7 per cent increase compared to the previous year.

Meanwhile, global consumption is forecasted to expand, leading to a decrease in ending stocks. Ending stocks are expected to decrease by 0.2 per cent in 2023/2024 and by 5.9 per cent in 2024/2025. The reduction in stocks is mainly projected for palm oil, followed by rapeseed.

Meanwhile, the implied ending stocks-to-use ratios of 14.5 per cent and 13.3 per cent for 2023/2024 and 2024/2025, respectively, are 0.40 to 1.63 percentage points below the highs observed in 2019/2020.