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La Niña’s Return Points to Higher Palm Oil Production in 2023

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La Niña’s unusual return appearance for a third year in a row bodes well for next year’s palm oil production in Indonesia and Malaysia, the two biggest producers.

A Gro analysis previously found that above-average precipitation in the two countries, which typically accompanies La Niña climate events, is often associated with higher palm oil yields 6-8 months later and possibly longer. 

NOAA’s Climate Prediction Center (CPC) estimates that there is a 91% chance of La Niña weather conditions continuing through November 2022. Although the CPC expects La Niña will also stick around through the Northern Hemisphere winter, it ascribes a lower, 65% chance of this occurring. 

Historically, La Niña tends to bring above-normal precipitation for much of Indonesia and Malaysia from August into November, a trend that is also bearing out this year. This would suggest higher palm oil production early in the second quarter and into the third quarter of 2023. One widely followed, medium-term forecast model, the North American Multi Model Ensemble, appears to be picking up on this signal and has above-normal precipitation forecast for most of Indonesia and Malaysia this fall. 

Gro’s Climate Risk Navigator for Agriculture shows that soil moisture is at its highest level since at least 2010 in the palm growing areas of both Indonesia and Malaysia, a factor that should give a boost to palm oil yields in coming months.  

The red line in this chart from Gro’s Climate Risk Navigator for Agriculture shows current soil moisture in palm growing areas of Indonesia is at its highest level in at least a decade, pointing to increased production in 2023 in the world’s largest palm oil producer.

Palm plantations need regular precipitation to replenish water tables that are constantly being depleted by the thirsty trees. In Malaysia’s top two palm growing states of Sarawak and Sabah, aggregated precipitation so far this calendar year, weighted for palm-growing areas using Climate Risk Navigator, is running at the fifth-highest level of this century. Soil moisture for the two states’ palm areas is the highest since at least 2010. 

Previous La Niña years resulted in higher palm oil yields. In the first half of 2019, Malaysia’s monthly crude palm oil production increased from the prior year by an average of 5.3% following the La Niña rains of 2017/18. 2020 and 2021 were also La Niña years, but production in both Indonesia and Malaysia was curtailed by labor shortages due to COVID restrictions. Other factors, including fertilizer applications, also can affect palm plant yields. 

Prices for palm oil, the most widely consumed vegetable oil, have dropped sharply from highs reached in April 2022, but recently increased again in concert with soybean oil as forecasted production for the US soybean harvest has diminished. Meanwhile, global palm oil supplies have expanded amid stepped up exports from Indonesia and Malaysia. That’s a reversal from conditions this past winter, when the Russian invasion of Ukraine exacerbated worldwide shortages of a host of vegetable oils.  

View a Gro Portal display showing palm oil production, inventories, and trade among major global producers and consumers.  

La Niña conditions are currently in place, according to the CPC’s Oceanic Niño Index, which is calculated based on ocean temperatures in a specific part of the Pacific Ocean. A separate index called the Multivariate ENSO Index, which is available on Gro's web Portal, also indicates La Niña is in effect — negative values signal La Niña conditions while positive values point to El Niño conditions. The Multivariate ENSO Index includes additional variables such as sea level pressure. 

La Niña tends to create drought and dry conditions in many parts of the world, including Brazil, Argentina, and the US, while bringing additional precipitation to other areas, such as Australia and parts of Asia. 

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