04/03/2011 (Bloomberg) - Palm oil advanced for a third day on concern that soybean output from Brazil may decline, spurring demand for other vegetable oils as stockpiles decline.

The May-delivery contract climbed 0.3 percent to close at 3,600 ringgit ($1,188) a metric ton on the Malaysia Derivatives Exchange, the highest close in more than a week.

Soybeans climbed for the second straight day yesterday on speculation that adverse weather may lower yields in Brazil, while planting in the U.S. is slower than usual. The countries are the biggest exports of the oilseed. Malaysian reserves of palm oil shrank to 1.4 million tons in January, the lowest since July, the country’s Palm Oil Board said last month.

“Crude palm oil sellers are in no hurry,” Vijay Mehta, director at Commodity Links Pte. in Singapore, said by phone. “They want to hold as stock levels are not so high.”

Palm oil fell 8.9 percent in February, the first drop since June, amid speculation supplies may rebound from Malaysia and Indonesia as rains eased. Prices slumped to 3,336 ringgit on Feb. 24, a three-month low, and the drop in prices is attracting buyers, Mehta said.

Malaysian inventories may be replenished as yields recover starting in April, HwangDBS Vickers Research Sdn. said in a report yesterday.

“The trend is looking positive because once again global demand is emerging for palm oil,” said Veeresh Hiremath, an analyst with Karvy Comtrade Ltd. at Hyderabad in India.

Brazil Floods
Parts of central Brazil will get as much as 8 inches (20 centimeters) of rainfall in the next seven days, flooding some fields, said Fred Gesser, a senior forecaster for Planalytics Inc. in Berwyn, Pennsylvania. Wet, cold weather in the next two months will boost the risk of flooding and delay U.S. planting from northeast Arkansas to North Dakota to Ohio, he said.

There is a threat of “floods in Brazil, so the nearby tightness is there,” said Mehta. “China and Europe are switching to the U.S. for their soybean purchases.”

China will be the top export market for U.S. farm products in the 2011 fiscal year with shipments valued at $20 billion, Joe Glauber, the chief economist for the U.S. Department of Agriculture, said on Feb. 24.

Soybean oil is a rival product and has similar uses to palm oil. Soybeans for May delivery fell as much as 0.7 percent to $13.8425 a bushel on the Chicago Board of Trade and was little changed at $13.9675 at 6:10 p.m. Singapore time. The commodity reached a 30-month high of $14.5575 last month.

September-delivery palm oil on the Dalian Commodity Exchange fell 0.7 percent to close at 9,510 yuan ($1,447) a ton. Soybean oil for delivery in the same month shed 0.7 percent to 10,308 yuan a ton.