24/05/2011 (Bloomberg) - Palm oil declined, ending the longest rally in more than two months, as falling crude oil prices reduced the appeal of the commodity as a source of biofuel.

The August-delivery contract declined as much as 1.2 percent to 3,348 ringgit ($1,094) per metric ton on the Malaysia Derivatives Exchange, and settled at 3,355 ringgit. Palm oil had risen for five sessions to May 20.

“It’s profit-taking after recent rallies,” Donny Khor, senior vice president for futures & options at OSK Investment Bank Bhd., said in Kuala Lumpur. Falling crude prices also fueled the decline, he said.

Oil dropped in New York amid signs the economy is slowing in the U.S., the biggest crude-consuming nation, and on concern Greece may default, stoking speculation fuel demand may weaken. Crude for July lost as much as 3.2 percent to $96.91 per barrel.

Palm oil price may decline as much as 30 percent this year to 2,500 ringgit ($821) a ton, with the market being in surplus from July, Royal Bank of Scotland Group Plc (RBS) said in a report.

Global output may increase 8.3 percent to about 13 million tons in the three months from July, compared with the previous quarter, because of improved weather, and consumption will stay flat, RBS analyst John Rachmat said in the report dated May 18.

Palm oil reached a 35-month high of 3,967 ringgit a ton on Feb. 10 as rains in Indonesia and Malaysia, the top two growing regions, cut yields.

U.S. Soybeans

Palm oil also fell today on speculation that U.S. planting of soybeans, which are crushed to make a rival cooking oil, may accelerate.

“We’re expecting to see planting progress of soybeans at the end of the month,” Ker Chung Yang, an investment analyst at Phillip Futures Pte., said by phone from Singapore. “Increasing soybean production is likely to weigh on palm oil.”

Still, losses may be limited because of strong demand from China and India, the world’s two biggest consumers of edible oil, Ker said.

Malaysia’s palm-oil exports rose 29.7 percent to 794,322 tons in the first 20 days of May, compared with the same period in April, surveyor Intertek said May 20. Shipments gained 28.3 percent to 819,257 tons, Societe Generale de Surveillance said.

Soybeans for July delivery gained as much as 0.9 percent to $13.93 a bushel on the Chicago Board of Trade before trading at $13.7412 at 6:32 p.m. in Kuala Lumpur.

January-delivery palm oil on the Dalian Commodity Exchange dropped 0.6 percent to close at 9,214 yuan ($1,403) a ton. Soybean oil for delivery in the same month rose edged 0.3 percent lower to 10,124 yuan a ton.

CME Group Inc.’s most-active September palm-oil contract, pegged to the Malaysian benchmark, fell 1.5 percent to settle at $1,088 per ton.