Malaysia's palm oil output unlikely to rebound this year

In the second half of the year, a hoped-for recovery in Malaysian palm oil output is unlikely, as the world's second biggest grower continues to struggle with shortages of fertilizer and workers.

The price of fertilizers, which make up about 40% of palm oil production cost, went up over the last year on logistics snarl-ups and then the Russian invasion of Ukraine. Over the last few months, prices have retreated, but many growers struggled to buy enough earlier in the season, curbing yields.

On top of that, government efforts to bring in more foreign plantation workers aren't happening fast enough to revive production this year. The Malaysian Estate Owners Association said the shortage has worsened to around 120,000 workers, compared with 36,000 before the epidemic. Members are mostly small and medium-sized planters.

Oil palms will not reach their full potential because of the lack of fertilizer input in the past three years and the shortage of labor, he said. Even if you had money, you couldn't get certain types of fertilizers. The Malaysian Plantation Industries and Commodities Minister, Zuraida Kamaruddin, said last month that palm oil production would rebound to 23 to 25 million tons this year, up from a five-year low of 18.1 million tons in 2021.

Ong is estimating that it will be less than 19 million tons. The Malaysian Palm Oil Association, which represents bigger listed companies, sees a lower output of 18.5 million to 18.7 million tons. The lower-than-expected output of palm oil is likely to provide support for palm oil prices, which have fallen by around a quarter this month. Futures went up as much as 3.5% on Thursday.

Oil palm trees require a steady diet of nutrients and minerals. Malnourished trees produce less oil, which leads to lower extraction rates. An under-fertilized tree may grow fruit bunches weighing only 15 to 18 kilograms, compared to 25 to 30 kilograms from healthy trees, Ong said.

The larger plantations were able to absorb higher fertilizer costs thanks to the rally in palm oil prices, but many of them will struggle to ramp up production if there is a long delay in getting workers, said Nageeb Wahab, chief executive at the palm oil association. The government has approved an intake of foreign laborers, but there are still complications in the source countries and it will take time to train them, he said.

Nageeb said that even if the workers come, I think we will only start seeing additional production by September. We may miss out crops in the second half of the year, which we thought we could get in full. Malaysia looks to ease Migrant Worker Shortage as Borders Reopens, See also: Malaysia Looks to Ease Migrant Worker Shortage

Palm oil yields in Sarawak, which has the biggest planted area in the country, will likely be lower than expected over the rest of the year, according to Andrew Cheng, a veteran planter in the state. He said that estates have been unable to carry out manuring since late last year due to the severe worker crunch, despite purchasing fertilizers early.

Even if foreign workers come in now, it will take one to two years to rehabilitate, plus there is the high cost of labor and fertilizers, Cheng said. Oil palm plantations are not growing but shrinking due to abandoned areas over the last few years. None of the NBA moves to Africa to fuel Basketball's Next Era of Growth