Felda Global Ventures Holdings Bhd, the world's third-largest palm plantation operator, could see its palm output fall short of target this year after dry weather hit yields, the firm's chief executive officer said.

The planter had previously set a target of 3.3 million tonnes of crude palm oil production in 2014, versus 3.21 million tonnes in 2013, but cautioned that output could fall short depending on the weather conditions in Malaysia and on the possibility of an El Nino weather formation.

"The drought we had early this year will definitely affect output for 2014," Mohd Emir Mavani Abdullah told Reuters on Wednesday.

"We are seeing about 3 to 5 percent below our target. But we hope that when the rain comes, we can still achieve the target. It all depends on the weather."

Leading vegetable oil analysts have forecast that there is a greater likelihood of the El Nino weather phenomenon developing from June onwards, causing crop-damaging dryness over Southeast Asia where most of the world's oil palm is cultivated.

An El Nino, the Spanish word for boy, could lift benchmark palm prices to RM3,000 ($910) in April and boost them to RM3,500, as it would depress yields from trees that have already been stressed by the two-month drought earlier this year, analysts said.

Mohd Emir said that in the absence of an El Nino, prices would likely hover between RM2,500-2,800, compared to Wednesday's closing of RM2,690 per tonne.

With a market share of RM16.59 billion ($5.03 billion), Felda Global Ventures is one of the biggest palm oil producers in Malaysia with an acreage of over 370,000 hectares of oil palm estates.

It also operates rubber plantations, palm oil packaging and refining operations and sugar businesses in ten countries across four continents.

Felda Global had a RM10.2 billion ($3.1 billion) listing in 2012, at the time the largest in the world after Facebook's IPO, and had said it planned to use the funds to expand in Southeast Asia and Africa.

Soaring costs

Mohd Emir said the group is "in the final stages" of talks with commodity businesses across Southeast Asia to expand both its upstream and downstream operations, but declined to comment further on the size of the deals.

He added that Felda's strategy focuses on acquiring existing plantations to meet targets of growing its business by 8 percent each year, but it will also look at buying sites for development for long-term growth.

In July 2013, Felda paid RM1.2 billion ($363 million) to buy un-listed planter Pontian United Plantations which owns about 40,000 acres of oil palm estates - a hefty price-tag that signals soaring costs as land allocated for plantations in Malaysia grows more scarce.

To counter this, Felda said it is also looking to improve its own palm oil productivity, by raising oil extraction rates and by replanting 15,000 hectares of oil palm trees for the next three years. The firm will also give priority to research and development and estate management efficiencies.

"We are not just looking at landbank expansion. Sometimes it's much cheaper for us to look at productivity improvement than to go for landbank expansion," Mohd Emir said.

"Better yield per hectare can allow us to meet our palm oil output targets."

Felda's current average yield per hectare is around 19 to 21 tonnes of fresh fruit bunches per hectare, Mohd Emir said, within the industry average of 19.2 tonnes.

Felda Global shares rose 1.1 percent to RM4.60 per share on Wednesday, outperforming the broader market.

- Reuters