A recovery in Malaysian palm oil stocks – which is expected to be shown by data next week, and spurred a price tumble on Friday – will prove only temporary, US officials said, cautioning that an “acute” plantation labour shortage has yet to be resolved.

Official data on Tuesday are expected to show Malaysia’s palm oil stocks rising by 77,000 tonnes, or 5.2%, in April to 1.55m tonnes – the first month-on-month expansion since October.

Production last month is seen showing growth of 4.9% month on month to 1.48m tonnes – in line with the seasonal cycle of Malaysian palm oil output, which typically bottoms out early in the calendar year.

Exports shrank by 5.6% to 1.20m tonnes, investors surveyed by Reuters believe.

‘Stocks to fall again’

However, Malaysia’s palm oil inventories face a renewed drawdown before the end of the season, given the squeeze on supplies of many other vegetable oils, the US Department of Agriculture’s Kuala Lumpur bureau said in a report.

“Though stock levels have improved slightly in 2021-22 to date, [the bureau] expects ending stocks to fall again to 1.3m tonnes given the low global supplies of edible oil,” the briefing said.

An inventory level of 1.3m tonnes at the close of the season, in September, would be the lowest marketing-year-end figure on available data going back to 2008, and the smallest for any month since April 2009.

The bureau cited the prospect of continued production disappointment in Malaysia, where Covid restrictions have hampered plantations’ access to foreign workers which they rely on for most of their workforce.

‘Will take time’

While Malaysia’s government has backed the recruitment of 32,000 foreign workers, including a deal with Indonesia, from where many have historically come, “it will take time to fill… the acute shortage of manual labour”, the bureau said.

The signing of the deal with Indonesia “coincides with the fasting month of Ramadan and related holidays and will likely delay recruitment of Indonesian workers until late May or June”.

It forecast Malaysia’s palm oil output in 2021-22 at 18.50m tonnes – 500,000 tonnes below the USDA’s official forecast, although up by more than 600,000 tonnes year on year.

The forecast implies production totalling 9.89m tonnes in the last half of the season, an improvement of 2.5% year on year.

That would represent a slowdown compared with the 3.6% output recovery recorded for the October-to-March half.

Futures tumble

The bureau forecast the improvements in access to foreign labour having a greater impact in 2022-23, for which it pegged Malaysia’s palm oil output at 19.50m tonnes, which would be the best result in three years.

“Current high fertilizer prices may result in lower application, particularly by smallholders, which may have an impact on yields during 2022-23.

“On the other hand, high profitability due to historically high CPO [crude palm oil] prices may allow plantation operators to continue investing in fertilizer.”

Fertilizer giant Mosaic this week cut to 4.4m-4.9m tonnes its forecast for 2022 potash imports by Indonesia and Malaysia, the big two palm oil producers, which bought in 6.0m tonnes last year, saying that “we perceive reduced global availability becoming a bigger limiting factor… for the region” followings the pressure on former Soviet Union exports prompted by the Ukraine war .

Kuala Lumpur palm oil futures – which set a record high in March of 7,268 ringgit a tonne, on a benchmark contract basis – closed on Friday at 6,400 ringgit a tonne for July, tumbling by 5.2% in the session.

The decline was attributed to expectations of Tuesday’s Malaysian Palm Oil Board showing increased Malaysian palm inventories.