Bloomberg

25 October, 2010

Palm oil advanced to the highest level since July 2008, extending an eight-week rally, as investors bought commodities to protect their wealth and on concern lack of rain is delaying soybean planting in Brazil.

Palm oil for January delivery climbed as much as 2.5 percent to 3,079 ringgit ($996) a metric ton on the Malaysia Derivatives Exchange, and traded at 3,070 ringgit at 3:07 p.m. in Singapore. The most active contract gained 18 percent in the eight weeks to Friday, the longest winning streak since the 10 weeks ended May 25, 2007.

Soybean planting in Brazil’s Center West, which represents 47 percent of the country’s output, is delayed as rains forecast in the 10 days from Oct. 22 are insufficient for growers to plant next year’s crop, according a Brazilian forecaster.

“La Nina typically brings dry weather to South America later in the year which could hamper soybean production,” said Sunaina Dhanuka, an analyst with Macquarie Capital Securities (Malaysia) Sdn. She raised her average price prediction for 2011 by 8 percent to 2,851 ringgit and for 2012 by 24 percent to 3,068 ringgit.

Farmers in Mato Grosso state planted 16.4 percent of the planned area as of Oct. 21, compared with 36.8 percent a year ago, farm research institute IMEA said on Oct. 22. Growers in the other Center-West areas of Goias and Mato Grosso do Sul planted 9 percent and 20 percent, compared with 25 percent and 34 percent, Marco Antonio dos Santos, a forecaster at Sao Paulo- based Somar Meteorologia Ltda, said the same day. Brazil is the second-largest producer of soybeans after the U.S.

The dollar index dropped as much as 1 percent against six major currencies to 76.709 today, prompting investors to buy commodities as a hedge against the decline in the value of the currency.

Soybean Crops

Soybeans traded in Chicago for January soared as much as 1.7 percent to $12.32 a bushel today, and soybean oil for December delivery climbed 3.9 percent to 50.20 cents a pound, the highest level since September 2008.

Delays in South American plantings coupled with lower-than- normal rainfall would reduce soybean harvests from February to May, lifting palm oil prices, Ben Santoso, a plantation analyst at DBSVickers Research Singapore, said on Oct. 22.

Palm oil may average 2,980 ringgit this quarter, Santoso said. That’s 17 percent higher than the third-quarter average and 27 percent more than the fourth quarter last year, according to Bloomberg data. The commodity may average 2,750 ringgit in 2011, Santoso said, raising his estimate by 11 percent.

Global production will increase “a meager 1.7 million tons” this year, he said. Indonesia and Malaysia produce about 90 percent of world supply.

Palm Oil Supply

The Malaysian Palm Oil Board’s estimate of 17.6 million tons this year is little changed from 17.56 million tons last year. Indonesian output may drop by as much as 10 percent this year to about 19 million to 20 million tons after a longer-than- normal rainy season disrupted harvesting, Susanto, head of marketing at the Indonesian Palm Oil Association, said Aug. 12.

Palm oil has rallied 11 percent since the U.S. Department of Agriculture said Oct. 8 that the nation’s soybean output may total 3.408 billion bushels (93 million tons), less than the 3.483 billion projected in September.

CME Group Inc.’s January palm oil contract, pegged to the Malaysian benchmark price, gained as much as 4 percent to $993 a ton. Palm oil for May delivery on the Dalian Commodity Exchange climbed 2.7 percent to 8,550 yuan ($1,285) a ton.

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