Malaysia's palm oil producers under threat as El Nino rears its ugly head

The cash crop's yields could crash by 20%.

Malaysia's palm oil producers are under threat from the looming spectre of El Nino, a report by BMI Research revealed.

The report noted that fresh fruit bunch (FFB) yields could decline by up to 20% in the case of a severe event, significantly reducing production.

"We believe palm oil will be the commodity most impacted by the weather phenomenon.production. As a result, El Niño could further tighten the global supply of palm oil in 2014/15 and 2015/16, which is already forecast at its lowest level since 2009/10 when measured by the stocks-to-use ratio," stated the report.

Although production will be impacted, BMI Research believes that El Nino could give low crude palm oil (CPO) prices a significant boost.

“We believe El Niño poses a clear upside risk to our view for prices to remain weak over 2015. Prices could rally significantly should rainfall prove deficient this year,” BMI Research noted.