Palm oil dropped the most in three weeks after it became more expensive than soybean oil for the first time in more than three years, increasing the appeal of the rival oil for use in food and fuels.
March-delivery futures fell as much as 2 percent to 3,810 ringgit ($1,242) a metric ton, the most since Dec. 17, and traded at 3,830 ringgit on the Malaysia Derivatives Exchange at 3:04 p.m. local time. The contract reached a 34-month high yesterday on speculation inventory in Malaysia, the second- biggest producer, may have dropped to a five-month low in December.
Soybean oil traded at a discount of $14.30 a ton to palm oil yesterday, the first time since June 2007 that the oil has been cheaper than the tropical commodity. Soybean oil traded at a premium of $4.3 a ton today, compared with a 12-month average of $85.35, according to data compiled by Bloomberg.
“There will be an incentive for buyers to look at soybean oil as it’s trading at only a marginal premium to palm oil,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn.
Palm oil futures have surged 67 percent in the past six months on concern that cooking-oil supplies may tighten as dry weather in Argentina weakened the crop in the largest soybean- oil producer and rains damaged oil-palm harvests in Indonesia and Malaysia. Vegetable-oil reserves are forecast to decline to a seven-year low at the end of this season, according to the Economic Research Service of the U.S. Department of Agriculture.
Oilseeds have climbed since July on “unsustainably high” consumption, and prices may gain more in the next three months, especially if the outlook for the soybean crop in Argentina continues to drop, according to industry researcher Oil World.
‘Major Variable’
“Supply shortage of oilseeds and primarily of oils and fats is likely to last well into 2011,” Oil World said. “The extent of crop losses in Argentina is currently a major variable to watch.”
Palm oil output in Malaysia fell to the lowest in five months in November and stockpiles shrank for the first time in four months, the nation’s palm oil board said Dec. 10.
“The stockpiles in Malaysia will decline further with a pick-up in demand and because of lower production,” said Govindlal G. Patel, director of GGN International, an Indian commodity brokerage. “Shortage of palm oil will be more than soybean oil and that will support prices.”
Futures may cross 4,000 ringgit in the next one month supported by lower output and rising demand, ECM Libra’s Tan said yesterday. Prices may average 2,800 ringgit, she said.
March-delivery soybean oil fell as much as 0.5 percent to 56.55 cents a pound, and traded at 56.82 cents at 3:08 p.m. in Singapore. The oil declined 1.5 percent yesterday as corn, soybeans and gold dropped on bets that a global rebound in the economy will draw more funds into the dollar and equities.
Palm oil for September delivery on the Dalian Commodity Exchange declined 1.3 percent to 9,794 yuan ($1,479) a ton and soybean oil for delivery in the same month shed 0.9 percent to 10,512 yuan a ton.
CME Group Inc.’s March palm oil contract, pegged to the Malaysian benchmark price, gained as much as 2.1 percent to $1,254.25 a ton.
KUALA LUMPUR (Dow Jones)-
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