The La Niña weather pattern tends to bring increased rainfall in the principal crude palm oil producing regions of Indonesia and Malaysia. While high rainfall amounts often benefit palm oil production, excessive rainfall can hinder yields and ability to harvest the crop.
This year’s La Niña is creating drought and dry conditions in some parts of the world, including Brazil, Argentina, and the US, even as other areas can expect increased precipitation. Current meteorological forecasts call for a weak La Niña event that could bring above-average rainfall to Southeast Asia through March 2021, which could result in a bumper harvest of palm oil next year. So far, rainfall totals are close to the 5-year average, but it will be important to monitor precipitation forecasts over the next few months.
The most recent La Niña in 2017-2018 brought beneficial rainfall to palm-producing regions of Indonesia and Malaysia. It was a weak climate event that was followed by higher crude palm oil output.
Dry conditions caused by La Niña in South America, a major area for soybean production, threatens to hurt yields of the oilseeds. That would support soybean oil prices, which are highly correlated to palm oil prices, due to easy substitution in the global vegetable oils market. Palm oil and soybean oil are the most consumed vegetable oils in the world, together accounting for over 50% of global production of vegetable oils. Production of the two oil types directly impacts input costs for a wide range of products.
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