Palm Oil Declines as Better Soybean Crops Ease Supply Concerns

Palm oil dropped the most in two months, tracking overnight losses in soybeans which declined amid a report that Brazil’s output and exports may climb to records and on speculation U.S. farmers may increase planting.

The April-delivery contract declined as much as 3.5 percent to 3,796 ringgit ($1,247) a metric ton on the Malaysia Derivatives Exchange, the most since Dec. 17, and was at 3,803 ringgit at 5:28 p.m. in Kuala Lumpur. Local financial markets were closed yesterday for a public holiday.

Brazil, the second-largest producer of soybeans, may have record output and exports this year as rainfall in Mato Grosso, Parana and Minas Gerais boosts crop prospects and plants develop faster than normal, researcher Oil World said yesterday. Soybean oil is a substitute from palm oil, and shifts in soybean and soybean-product prices can influence palm oil.

“Markets were closed yesterday so there could be some spillover from the soybeans market on Monday and yesterday,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. in Kuala Lumpur. A bigger-than-expected soybean crop in Brazil could have a “compounded effect,” she said.

Brazil’s soybean crop may total 71 million metric tons, up from last year’s record of 68.7 million tons, and exports may climb 13 percent to an all-time high of 33 million tons, Oil World said. Normal or above-normal rain the past six weeks has improved conditions, the company said. Acreage in the U.S., the top grower and exporter of the oilseed, may gain 0.8 percent to a record 78 million, the U.S. Department of Agriculture said on Feb. 14 in a 10-year outlook report.

Backwardation

The forward curve is now in backwardation, reflecting expectations that prompt prices of palm oil could “ease in the coming months”, Xin Yi Chen, an analyst with Barclays Capital, said in a report yesterday. A backwardation in palm oil prices occurs when near-term contracts are more expensive than those for future delivery.

“High prices also facilitate substitution away from palm oil to other vegetable oils, moderating demand,” Chen said. Still, high demand from China and India for cooking oil, as well as low stock levels which make prices more vulnerable to any supply disruptions, may continue to support prompt crude palm oil prices, Chen said.

May-delivery soybeans advanced as much as 0.5 percent to $13.885 a bushel in Chicago and traded at $13.8525 at 4:22 p.m. Singapore time. Prices fell for a fourth straight day yesterday, losing 2.5 percent to $13.8125.

“Traders continued to reduce risk exposure in the face of improved South American crop prospects and diminished export demand,” Phillip Futures Pte said in a report today. “With record projected Brazilian crops doing well and Argentina receiving beneficial rains, South American crops are looking bigger.”

September-delivery palm oil on the Dalian Commodity Exchange dropped 1.9 percent to close at 9,848 yuan ($1,495) a ton. CME Group Inc.’s most-active May palm-oil contract, pegged to the Malaysian benchmark price, declined 2 percent to $1,235 a ton at 4:09 p.m. in Singapore.

(Source: http://www.bloomberg.com/news/2011-02-16/palm-oil-drops-as-soybean-crops-ease-supply-concerns-correct-.html)