Palm production in Indonesia rising for first time in six months

Palm oil production in Indonesia, the world’s largest supplier, will probably climb for the first time since September, as yields recover from a seasonal decline.

Prices in Kuala Lumpur tumbled to a one-month low.

Output may increase 11 percent to 2.1 million metric tons in March from the previous month, according to the median of five industry estimates compiled by Bloomberg.

Exports expanded 4.4 percent to 1.65 million tons, while inventories were unchanged at 2.1 million tons, the survey showed.

Futures jumped to the highest level since September 2012 this month on concern dry weather in Indonesia and Malaysia would cut production in the world’s top growers this year.

Output in Indonesia fell last year for the first time since 1998, reducing supplies of the commodity used in everything from Nestle SA instant noodles to Unilever soaps. Yields are lowest in January and February because of growing cycles.

“Production typically increases in March from February,” said Joelianto, a Jakarta-based trader at PT Sinar Mas Agro Resources and Technology, a unit of Golden Agri-Resources Ltd.

“The weather should be improving too.”

North and central parts of Sumatra are forecast to receive 20 millimeters to 100 millimeters of rain per day between March 18 and 24, according to the Jakarta-based Meteorology, Climatology and Geophysics Agency.

Drought Impact

Palm dropped 1.6 percent to 2,729 ringgit ($825) a ton on the Bursa Malaysia Derivatives today, the lowest price at close since February 19.

Futures reached 2,916 ringgit on March 11, the highest since September 2012.

The percentage change for exports is derived from the February figure from the Indonesian Palm Oil Association, known as Gapki. Comparisons for output and reserves are based on earlier surveys.

Prices will probably touch 3,000 ringgit in April, Rabobank International analysts, including Luke Chandler in Sydney, said in a report e-mailed yesterday.

However, the prospect of improved weather conditions may limit the upside, said the bank, which forecasts futures will average 2,800 ringgit in the second quarter and 2,700 ringgit in the three months through December.

The dry season started early in January and February in parts of Sumatra with no rain in Riau for two months, the state weather office said March 4.

Riau and North Sumatra represent about 60 percent of output, according to Gapki. While analysts expect the drought to start curbing production from the fourth quarter, Derom Bangun, chairman of the Indonesian Palm Oil Board, said the dry spell also disrupted harvesting in February.

Production in Indonesia fell 1.9 percent to 26 million tons in 2013 from a year earlier, according to Gapki. The country increased output fivefold since the last drop in 1998, U.S. Department of Agriculture data show.