Palm Oil Rises on Speculation That Soybeans May Extend Rally

Palm oil advanced on speculation that corn and soybeans, crushed to make a rival vegetable oil, may extend rallies from 29-month highs.

March-delivery futures rose 0.5 percent to 3,699 ringgit ($1,210) a metric ton on the Malaysia Derivatives Exchange. The most-active contract dropped 2.2 percent last week.

Corn futures reached a 29-month high on the Chicago Board of Trade last week and soybeans capped the biggest weekly gain in six weeks on Jan. 14 on mounting concern that inventories are dropping in the U.S., the top grower and exporter of both crops. Palm oil competes withsoybean oil in food and biofuel uses.

“Crude palm oil is likely to be affected by fluctuations in the financial markets,” said Ker Chung Yang, an analyst at Phillip Futures Pte. in Singapore. The market is watching the outcome of Chinese President’s Hu Jintao’s first U.S. state visit since 2006, and several U.S. companies are due to report earnings this week, he said. Today’s gain in palm oil “is likely to be capped because the U.S. market is closed tonight.”

The Chicago exchange is closed today for the federal Martin Luther King Jr. holiday. Hu, who will meet President Barack Obama this week, has rejected U.S. arguments that allowing the yuan to appreciate against the dollar would help the government in Beijing tame inflation. U.S. lawmakers argue that a weak yuan hurts U.S. manufacturers and widens the U.S. trade deficitby artificially holding down the price of exported Chinese goods.

“We believe the anticipation of yuan strengthening is likely to keep soybean prices well supported,” Phillip Futures said in a report today. “Prices could be poised to rise after unwinding from an overbought situation. The rally of CBOT soybeans for March delivery may continue in the coming week.”

U.S. Corn

Production of corn in the U.S. dropped 4.9 percent last year and will leave stockpiles before the 2011 harvest at a 15- year low, the Department of Agriculture said Jan. 12. The agency also cut its estimate of the soybean crop by 1.4 percent and said domestic reserves will fall to 4.2 percent of demand.

Palm oil on Jan. 4 reached 3,905 ringgit, the highest level since March 2008, on concern that global cooking-oil supplies may tighten because of weather disruptions to soybean crops inArgentina and oil-palm harvests in Indonesia and Malaysia.

Soybean output in Argentina, the third-largest producer of the oilseed, is forecast to fall 15 percent to 47 million tons this year because of water shortages in the main growing regions, the Buenos Aires Cereals Exchange said Jan. 13.

“Light rains are forecasted for early this week in Argentina but more rain will be needed and dryness is expected to continue stressing crops,” Ankita Parekh, an analyst with Geojit Comtrade Ltd. in Mumbai, wrote in a report today. “If these rains are missed, drought stress will accelerate and support the ongoing rally.”

Malaysian Exports

Malaysia’s exports of the commodity climbed 3.7 percent in the first 15 days of January from the same period in December, market surveyor Intertek said Jan. 15.

Soybeans for March delivery climbed 0.5 percent to close at $14.225 a bushel on Jan. 14. Palm oil for September delivery on the Dalian Commodity Exchange lost 0.7 percent to 9,764 yuan ($1,481) a ton. Soybean oil for delivery in the same month fell 0.6 percent to 10,520 yuan a ton. CME Group Inc.’s March palm oil contract shed as much as 0.3 percent to $1,205.25 a ton on Jan. 14.

(Source: http://www.bloomberg.com/news/2011-01-17/palm-oil-rises-on-speculation-that-soybeans-may-extend-rally.html)