KUALA LUMPUR, Oct 21 — Palm oil production in Malaysia, the world’s second-largest producer, is forecast to rise in 2017 by 5.6 per cent from this year on better yields and an expansion in matured areas, the government said today.

Malaysian output is expected to fall 9.8 per cent to 18 million tonnes in 2016, while yields are estimated to decline 5.3 per cent, according to forecasts in the government’s annual economic report just ahead of Prime Minister Datuk Seri Najib Razak’s announcement of the 2017 budget.

This year, Malaysia’s palm oil production was sapped by dry weather conditions related to the El Nino weather phenomenon that typically brings hot, dry conditions to Southeast Asia.

"In 2016, the price (average CPO price) is expected to stabilize at around RM2,500 per tonne as production is expected to improve in tandem with the fading of El Nino effect during the second half of the year,” said the report.

"The ending of the El Nino weather condition is expected to increase production of CPO for the remaining of the year.”

Benchmark futures prices of the tropical oil surged to the highest in over two years on Tuesday and has gained about 9 per cent so far this year. It last traded at RM2,702 per tonne at the mid-day break today, down 0.6 per cent. Futures have averaged RM2,547.52 so far this year. — Reuters