May 30, 2001

GOOD RAINFALL CONTINUES TO FAVOR MALAYSIAN PALM OIL

Summary:
Favorable rainfall for the past year and a half, plus projections for rising harvested area bode well for Malaysia palm oil through 2001/02.

Rainfall Above Normal:
Malaysia is enjoying higher than normal rainfall, which will promote high levels of palm oil output. Monthly average rainfall, weighted by region for palm oil area, has been above normal for the last 11 quarters except for the 3^rd quarter of 2000 (July-September), when it missed normal by just 4 millimeters.

Yields May Be High:
Modeling suggests palm oil yields of 4.04 tons per hectare for 2000/01 (October - September) and 3.91 for 2001/02 (see graph). These model yields may be optimistic, given the nature of linear trends. Also, rainfall was excessive in the 4^th quarter of 2000. Rainfall of over 300 millimeters per quarter tends to decrease pollination levels 6 months before harvest, and reduces the number of fruit finally produced. Nevertheless, overall rainfall levels for the last ten quarters have been beneficial.

Additionally, the 4.04 tons per hectare yield for 2000/01 is made up of two quarters of actual harvest data, and two quarters forecast by the regression model. The model projects output for 2000/01 at 12.4 million tons of palm oil, while the official USDA estimate is 12.2 million tons. Output for the first two quarters of 2000/01 totals 6.1 million tons for a yield of 1.99 tons per hectare through the two quarters. Excessive rainfall in the 4^th quarter of calendar year 2000 is likely to negatively impact yield in the July-September quarter of 2000/01.

Note: The linear regression model uses rainfall lagged 3 quarters, 1 year cumulative rainfall lagged 6 quarters, and time as independent variables, regressed against yield.

Harvested Area Projected Up by Ag Counselor:
While adequate rainfall favors yield, area expansion -- especially in Eastern Malaysia -- is also causing production to increase. According to the U.S. agricultural attache in Kuala Lumpur, fruit-bearing area is expected to expand to 3.08 million hectares in 2000/01, and 3.31 million in 2001/02, up from 2.82 million in 1999/2000. This is due to increases in plantings that took place when market prices were high, three years ago and earlier. Crude palm oil (CPO) prices plummeted from a high of 2,485 ringgit (US$578)/ton in August 1998 to a low of 695 ringgit (US$183)/ton in February 2001. During the recent Palm & Lauric Oils Price Outlook Conference in Kuala Lumpur, edible oil experts predicted CPO price to average between US$250 and US$260/ton for 2001.

For more information, contact Paul Provance with the Production Estimates and Crop Assessment Division at (202) 720-0881.