Malaysia forecasts 2017 palm oil output rising 5.6 percent y/y - govt

By Emily Chow

KUALA LUMPUR, Oct 21 (Reuters) - Palm oil production in Malaysia, the world's second-largest producer, is forecast to rise in 2017 by 5.6 percent from this year on better yields and an expansion in matured areas, the government said on Friday.

Malaysian output is expected to fall 9.8 percent to 18 million tonnes in 2016, while yields are estimated to decline 5.3 percent, according to forecasts in the government's annual economic report just ahead of Prime Minister 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 a hot, dry conditions to Southeast Asia.

"In 2016, the price (average CPO price) is expected to stabilize at around 2,500 ringgit 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 percent so far this year. It last traded at 2,702 ringgit ($645) per tonne at the mid-day break on Friday, down 0.6 percent. Futures have averaged 2,547.52 ringgit so far this year.

($1 = 4.1900 ringgit) (Reporting by Emily Chow; Editing by Christian Schmollinger)