03/01/2011 (Bloomberg) - Palm oil rose to the highest level in more than 33 months on concern that global supplies of cooking oils will shrink after rains disrupted harvests in Indonesia and Malaysia, the biggest producers of the tropical commodity.

March-delivery futures advanced as much as 1.6 percent to 3,850 ringgit ($1,256) a metric ton on the Malaysia Derivatives Exchange, the highest level since March 2008, and closed the morning session at 3,839 ringgit. Prices surged 42 percent in 2010, a second straight year of gains.

“The palm oil industry in Malaysia is no doubt facing a shortage in supply,” Bernard Ching, an analyst at ECM Libra Capital Sdn., said in a report today. “Prices will cross the 4,000 ringgit barrier in the first quarter of 2011.”

Palm oil futures have advanced 68 percent in the past six months amid concern that the supply of cooking oils may tighten as dry weather in Argentina hurt the crop in the top soybean-oil producer and rains affected oil-palm harvests in Indonesia and Malaysia. Vegetable oil reserves are forecast to touch a seven- year low at the end of this season, according to the Economic Research Service of the U.S. Department of Agriculture.

Output in Malaysia declined 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. Shipments in December dropped 15 percent to 1.28 million tons from November, surveyor Intertek said Dec. 31. Exports fell 19.7 percent, rival Societe Generale de Surveillance estimated.

Argentina’s soybean production may fall by 17 percent to as low as 43 million tons in the 2010-2011 harvest as a result of a drought caused by the La Nina weather event, researcher Economia y Regiones said Dec. 28.

China Demand
“Despite the fact that the U.S. harvest turned in a record crop, Chinese demand has been overwhelming, eating into the U.S. stockpiles,” Ching said. “Going into the 2011, there appears no avenue for soybean prices to weaken in the first half.”

China’s December soybean imports may be 5.3 million tons, Grain.gov.cn said in an e-mailed report on Dec. 23. Shipments for January and February are forecast at 5 million tons and 3.5 million tons, respectively, it said. Grain.gov.cn is a unit of the China National Grain & Oils Information Center.

The country accounts for 60 percent of global soybean imports, according to Rabobank Groep NV.

March-delivery soybeans, which climbed 33.8 percent last year, fell as much as 0.8 percent to $13.9225 a bushel on the Chicago Board of Trade. Soybean oil for delivery in the same month dropped as much as 0.6 percent to 58.01 cents a pound.

Chinese markets are closed today for a holiday.