El Niño Supports Palm Oil Production

RRI.CO.ID, Jakarta - After reaching 5,015 ringgit per ton in mid-August, CPO prices are still trying to break above that psychological level. Currently, CPO prices are trading around 4,966 ringgit per ton.

Despite pressure on palm oil production, stronger demand from India ahead of the Deepavali celebration could support prices. I see CPO prices having room to rise toward 5,130 ringgit per ton by the end of the year.

Forest fires and the expected continuation of El Niño until 2027 could also help keep CPO prices at relatively high levels. The impact of El Niño is likely to be more severe on oil palm plantations in Malaysia than in Indonesia.

Sumatra, in particular, has recently been less affected by the negative impact of El Niño. This could allow palm oil yields in the region to remain stable.

Although El Niño can create many problems for crops, some of its effects may benefit palm oil production. Harvesting can continue with fewer disruptions, while CPO yields can be higher during dry conditions than during the rainy season.

Oil palm trees can also be healthier during dry weather because heavy rain and flooding can reduce soil fertility. In addition, plantation maintenance costs are generally lower during the dry season.

Looking ahead, CPO production could remain stable with a slight upward trend. If production problems occur in Malaysia, global demand could shift toward Indonesia, potentially supporting higher fresh fruit bunch prices for farmers.

However, one factor could put pressure on future production: Indonesia's oil palm replanting program. Replacing older and less productive trees, particularly in Sumatra and Kalimantan, could temporarily reduce production.

Overall, developments in the upstream and downstream palm oil sectors are not expected to pose a major threat to CPO or fresh fruit bunch prices. Palm oil prices continue to be supported by solid market fundamentals.

Writer: Gunawan Benjamin (Economist, UISU)