S.E.Asia dry spell thins palm, rubber supply; threatens rice

A severe dry spell across a wide swathe of Southeast Asia threatens to curb output of palm oil and rubber, while the weakest rainfall in more than a decade may cripple rice planting in top exporters Thailand and Vietnam, according to a Reuters report on Thursday, March 18. The resurgence of an El Nino weather pattern in a region that is the world's biggest producer of palm oil, rice and rubber and a key supplier of coffee and cocoa has brought hotter weather to farms and PLANTATION []s, drying out trees and sapping yields. Taking the brunt of the harsh weather are Thailand and Vietnam, which together furnish half of world rice exports of about 30 million tonnes a year; some stretches of the island of Borneo and pockets of Indonesia, the world's largest palm oil producer; and even Australia is being affected slightly. Falling palm oil supplies from Malaysia and Indonesia, responsible for 85 percent of global production, could stiffen Malaysian benchmark futures , now up 45 percent from January 2009 lows. The Tokyo rubber market should climb in March, bolstered by strong demand and a sharp decline in supply, which have pushed physical prices to 58-year highs. "It looks quite severe as of now, and of course, everyone is hopeful this won't last, and the weather will be back to normal, but so far we haven't seen that," said analyst Ivy Ng of investment bank CIMB in Kuala Lumpur, who tracks palm oil firms. "If there are no rains until June, the trees will be stressed and it could have impact on production in the second half of the year or even in the first half." Poor rains in Indonesia, the world's largest palm oil producer, mean this year's output will miss the industry target of 21.5 million tonnes by about 5 percent. Neighbouring Malaysia is also likely to see production drop, just as the trade geared up for a seasonal output rebound. Planters in Malaysia's top palm oil producing state of Sabah on the island of Borneo say continuing hot weather could chip 10 percent off production this month after February's monthly slide of 15 percent. The situation is no better in peninsular Malaysia. "We only get very light showers in the morning, after that its good-bye, rain," said an official with a palm plantation in Sabah. "On the roadsides leading to the plantations, the grass is turning brown." COULD STRETCH INTO 2011 The dry weather could stretch far into 2011, analysts warned, shrinking output and supplies. "The current lag in palm oil output is due to last year's dry weather," respected analyst Dorab Mistry, head of vegetable oil trading at India's Godrej International, told Reuters. "The dry weather of 2010 will hurt production in the fourth quarter and first quarter of 2011." The situation is not too different for rubber, chiefly produced by Thailand, Indonesia and Malaysia, where the industry expects a downward revision in output as trees hit by moisture stress look likely to produce less latex. Thai rubber production in 2010 will miss a January forecast of 3.15 million tonnes by 5 percent because of the dry weather, a senior industry official said. "This year we would have around 3.0 million tonnes as the weather is expected to be very hot and dry," Luckchai Kittipol, president of the Thai Rubber Association, told Reuters. Poor rains may have spared rice in Thailand and Vietnam so far, but dry weather could force farmers to plant fewer acres with the next crop, although ample stocks make a big impact on benchmark Thai prices unlikely. Apichart Jongsakul, secretary general of Thailand's Office of Agricultural Economy, said the government had asked farmers to grow less off-season rice as key reservoir levels had dropped. "We now expect to have around 7 million tonnes of paddy rice from the second crop, down from around 8 million forecast earlier," Apichart said. MEKONG DELTA PARCHED Dryness brought by El Nino has parched Vietnam's southern Mekong Delta which could threaten planting for summer-autumn crop, the country's 2nd highest yielding crop. The world's biggest rice buyer, the Philippines, is suffering its worst dry spell since 1998, having lost more than 200,000 tonnes of paddy so far, which could drive it to import as much as 3 million tonnes of rice, officials say. Rice imports in 2010 already stand at a record 2.45 million tonnes. The situation is not ideal for the wheat crop in Australia, the world's fourth largest exporter, where the weather bureau predicts a 50:50 chance of normal rains in the crucial planting period between March and May. Rain could also be below average at the same time in the southwest of Western Australia, the country's top grain-exporting state, the bureau said. Still, Australia's second largest grain producting state, New South Wales, among those worst affected by drought in recent years, has staged a remarkable turnaround since the start of 2010, as the area officially declared in drought dropped by half. - Reuters