27/03/2012 (Financial Times) - Palm oil prices hit a year high on Monday amid a broader rally in oilseeds triggered by concerns about the soyabean crop in South America.

A drought in South America, which grows half the world’s soyabeans, has been pushing up the price of vegetable oil and the commodities they are made from. According to Oil World, a Hamburg-based forecaster, world soyabean production will probably fall by a record 22m-23m tonnes this season.

Erin FitzPatrick, a commodities analyst at Rabobank, said that the extent of the damage was becoming evident as the harvest in the southern states of Brazil progressed. “We are seeing more and more evidence of yield loss in South America.”

CBOT May soyabeans hit a six-month high of $13.88½ a bushel, while at the Bursa Malaysia exchange, crude palm oil rallied to a 12-month high of 3,479 ringgit a tonne.

On ICE Futures Canada, futures prices for oil from canola, a Canadian variant of rapeseed, hit a 13-month high of C$609.60 a tonne. Meanwhile, rapeseed in Europe, traded on Paris NYSE Liffe, hit a 10-month high of €492.50 a tonne.

Oilseeds get less attention than staple grains but their prices affect the cost of manufacturing products such as confectionery and livestock feed, and biodiesel fuel. The rise in soyabeans has pushed up the price of palm and canola oils as most vegetable oils can be freely substituted.

Although palm oil stocks remain high, global oilseed production is expected this year to fall by about 9m tonnes while demand is forecast to rise by about 12m tonnes, according to the US Department of Agriculture.

Corn and soyabeans usually compete for acreage in the US, and while some agriculture experts had predicted that the rally in oilseeds would upset the acreage forecasts, analysts said that the price increases in soyabeans were not enough to encourage a switch into that commodity as grain prices also remained high.

Demand for grains remains high and analysts said farmers in North America, who have started to plant their crops, were still biased towards corn.

That would mean that soyabean supply in the new 2012-13 crop year would remain tight as stocks would not be replenished.

In China, which buys 62 per cent of the world’s soyabean imports, high local corn prices suggest farmers there will switch from beans to corn.