Palm Oil Gains as Dry Weather in Soy Areas Boosts Supply Worries

(Businessweek) – Dec. 16 (Bloomberg) — Palm oil climbed, paring a weekly decline, on concern that dry weather in South America may lower soybean output and reduce edible oil supplies.

The March-delivery contract, the most active by volume, gained 0.5 percent to 2,985 ringgit ($940) a metric ton on the Malaysia Derivatives Exchange in Kuala Lumpur. Futures, which declined 3.2 percent this week, has lost 21.2 percent this year.

Areas of eastern and central Argentina got as little as 40 percent of normal rainfall in the 30 days through Dec. 14, according to QT Weather. The country will remain dry until Dec. 20, when storms may bring about 0.75 inch (1.9 centimeters) of precipitation, QT meteorologist Allen Motew said. The soybean crop may fall short of government estimates unless more rain falls, according to Grupo Los Grobo LLC, a producer.

“Weather in Argentina has been a concern for the soybean crop,” Chung Yang Ker, an analyst at Phillip Futures Pte., said by phone from Singapore. “Forecast of some flooding in the main plantation areas in Malaysia during the weekend are also supporting the prices.”

Production declined 14.8 percent to 1.6 million tons in November from a month earlier after the peak-harvest season ended, the Malaysian Palm Oil Board said on Dec. 13. Stockpiles declined 1.5 percent to 2.1 million tons, while exports shrank 9.9 percent to 1.7 million tons, the board said.

Palm oil is “sandwiched between the drop in production and a steep drop in exports, which is keeping the stockpiles intact, disallowing any kind of sustainable positive trend,” IIFL Ltd., an Indian brokerage said in a report today.

Malaysian exports fell 16.6 percent to 668,385 tons in the first 15 days of December, surveyor Intertek said yesterday. Shipments declined 19.2 percent to 649,138 tons during the same period, Societe Generale de Surveillance said.

‘Oversold’

“Palm oil was oversold yesterday,” Ryan Long, vice president of futures and options at OSK Holdings Bhd., said by phone from Kuala Lumpur. “There was a bit of a technical rebound.” Palm oil fell 2.7 percent yesterday to a six-week low on speculation that a weakening global economy may erode demand.

Soybeans gained the most in more than two weeks yesterday to $11.2125 a bushel on the Chicago Board of Trade. The March- delivery contract was 0.5 percent higher at $11.265 at 3:33 p.m. in Mumbai today. Soybean oil, a direct substitute for palm oil, gained 0.2 percent to 49.48 cents a pound, extending a 1.2 percent rally yesterday.

Palm oil for delivery in May rose 0.7 percent to close at 7,838 yuan ($1,235) per ton on the Dalian Commodity Exchange and soybean oil for September delivery climbed 0.8 percent to end at 8,790 yuan.

–Editor: Thomas Kutty Abraham

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net