Output may be 17.6 million metric tons compared with 17 million in 2010, Yusof Basiron, chief executive officer of the Malaysian Palm Oil Council, said in an interview yesterday. That would match production in 2009 and compare with 2008's record of 17.7 million tons, according to official data.
Increased supplies and lower prices may help cool global food costs that reached a record in January according to the United Nations' World Food Price Index. Palm oil has rallied 30 percent in the past year as floods hurt harvests in Indonesia and Malaysia. Soybeans, crushed to make a rival oil, have jumped 36 percent, tracking advances in wheat, corn and sugar.
"Higher production estimates will put pressure on the markets," Veeresh Hiremath, associate chief analyst at Karvy Comtrade Ltd., said from Hyderabad, India today. "In the short term, the market will be in the bearish trend" due to the better output forecast and improving weather, Hiremath said.
The May-delivery contract plunged as much as 5.1 percent to 3,336 ringgit ($1,088) per metric ton, the lowest price in almost three months, before trading at 3,378 ringgit at 3:44 p.m. in Kuala Lumpur. The drop extended yesterday's 4.2 percent slump.
'Become Expensive'
"Palm goes into almost every food product, and if palm and associate oils like soy become expensive, it will impact food prices," said Yusof, who's worked in the industry for 32 years. If Malaysia can export more palm oil it will help ease shortages and prevent food costs from rising, he said yesterday. The council markets and promotes the oil, according to its website.
Malaysia's Plantation Industries and Commodities Minister Bernard Dompok told reporters today that palm oil exports may be better this year than in 2010. The country intends to boost palm oil yields and accelerate replanting, Dompok said.
Malaysian palm oil exports increased to 16.7 million tons last year, worth 59.8 billion ringgit, compared with the 15.9 million tons that were shipped in 2009, according to data from the Malaysian Palm Oil Board.
"Rain is plentiful, not enough to cause floods, but enough to induce growth and vigor in the production processes of oil palms," Yusof said. "We could expect normalization of production back to what it should be from March."
Production in January declined 14.2 percent from a month earlier to 1.06 million tons, the lowest level since February 2007, according to the Malaysian Palm Oil Board. Stockpiles shrank to 1.4 million tons, the smallest amount since July.
La Nina
A La Nina weather event, which can bring excessive rain to Southeast Asia and drier-than-usual conditions to parts of Latin America, including the soybean- and corn-growing areas in Argentina and Brazil, is showing signs of weakening, according to the Australian Bureau of Meteorology.
Malaysia's palm oil reserves will be replenished by the second half of 2011 as yields improve, leading to a softening in prices, said Yusof. Crude palm oil may average 3,500 ringgit a ton this year, he said. Futures had reached a 35-month high of 3,967 ringgit a ton on Feb. 10.
Yusof joins ECM Libra Capital Sdn. and Credit Suisse Group AG in forecasting a drop in palm oil prices as the effects of the La Nina taper off. Palm oil may be close to peaking, Credit Suisse said in a report on Feb. 17.
Most increased production in Malaysia would need to come from boosting yields as there was little available land left to expand plantations, Yusof said. His comments echo 2006 remarks from Peter Chin Fah Kui, an earlier plantations minister.
--With assistance from Manirajan Ramasamy in Kuala Lumpur. Editors: Jake Lloyd-Smith, Jarrett Banks
To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
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