Malaysia is the world’s second biggest producer of palm oil and a fall in its production could lift palm oil futures FCPOc3, already trading near their highest level in four months.

Production is expected to rise to around 19 million tonnes from 18.45 million tonnes in 2022, but the output could drop marginally if El Nino develops as forecast, Nazrul Izam Mansor, FGV Holdings CEO, told Reuters in an interview.

An El Nino episode usually results in below-average rainfall in main palm oil producers Indonesia and Malaysia, cutting yields and pushing up global prices.

“Climate change is making managing plantations a difficult job. There was flooding earlier this year and if El Nino develops, then there will be a period of dry spell in the second half of the year,” Nazrul said.

The bigger impact of El Nino on production would be felt in 2024, he said.

FGV is preparing for El Nino by planning water management and has developed drought-resistant varieties, he added.