Rabobank: Global palm oil prices likely to be bullish after 2021

PETALING JAYA: Global palm oil prices are expected to enter a bullish environment post 2021 due to a projected decrease in production from the two largest global producers – Indonesia and Malaysia – from 2022 to 2025.

In its June 6 report, “A palm storm is brewing”, Rabobank said the expected decrease in production is a result of declining Fresh Fruit Bunches (FFB) yield of ageing palm plantations, limited available land for expansion and insufficient replanting activities in both countries.

Rabobank’s senior analyst of grains and oilseeds, food and agri- business Oscar Tjakra ( pic) said that typically, it would take four years for palm to become commercially viable, yielding close to 10 tonnes of FFB per ha. It would reach its peak between nine and 17 years, and yields above 25 tonnes of FFB per ha.

FFB yield would decrease below 15 tonnes per ha as palm trees became older than 25 years.

“In Malaysia and Indonesia, we estimate that about 36% and 9% of palm are older than 25 years.”

The report also found that global palm oil consumption will grow at a compounded average growth rate (CAGR) of 2.8% from 2018 to 2030, with production growing only at a CAGR of 1.4%.

This adds further upward pressure to palm oil prices, particularly as long-term demand from SouthEast Asia’s domestic market, India and Africa outstrips production.

“In the nearer term, the current low-price environment before 2022 could lead to a higher operational efficiency in plantation companies to reduce production costs, and accelerate consolidation in the industry,” said Oscar.

“It is important for producers to replant old plantations to boost supply in the region sustainably.

Replanting programmes are also important for smallholder palm plantations, which accounted for 39% and 33%, respectively, of total palm plantations in Indonesia and Malaysia,

“Despite short-term challenges such as potential income loss during the first three to four years of the replanting period, sustainable replanting programmes that could prevent further deforestation and land clearing, are important to boost future global palm oil production and improve productivity and welfare of smallholder farmers,” he said.