02/06/2011 (Bloomberg) - Palm oil declined to the lowest level in a week on speculation that output from Malaysia, the second- largest producer, may have expanded as much as 20 percent in May, and on expectations that global oilseed output will grow.

August-delivery palm oil declined 1 percent to 3,358 ringgit ($1,117) a metric ton on the Malaysia Derivatives Exchange, the lowest level at close since May 23.

World oilseed production will rise 1.7 percent in the year through September as improved crops in Brazil boost global output, Oil World said in a report yesterday. Malaysia’s palm oil production in April expanded 8 percent to 1.53 million tons from March, the nation’s palm oil board said on May 10. It will report May data on June 10.

“Initial indications show around a 20 percent gain in May production,” Vijay Mehta, director at Commodity Links Pte, said by phone from Singapore today. “If it is true, this will not allow palm prices to go up too high.”

Production of seven oilseeds may total 441.2 million tons, up 7.7 million tons from last year and 2.9 million tons more than an estimate last month, Oil World said. The soybean crop in Brazil will total 73 million tons, up 6.3 percent from a year earlier, according to the report.

“Exports were not that great,” Sandeep Bajoria, chief executive officer at brokerage Sunvin Group, said by phone from Mumbai. “That’s the reason the market is shedding some gains, so that it becomes more competitive.”

‘High Difference’
Malaysia’s palm oil exports rose 2.5 percent to 1.35 million tons in May compared with the previous month, independent cargo surveyor Societe Generale de Surveillance said yesterday. That was less than the 16.5 percent growth in the first 25 days of May, and 28 percent in the first 20 days, according to the surveyor.

Losses in palm oil futures may be limited because palm oil is supported by gains in soybeans and demand is expected to pick up, Mehta said.

“Because of the high difference, not many consumers are really chasing soybean oil at this level,” he said, referring to the oil’s premium over palm oil.

Soybean oil’s premium widened to $172.16 a ton today, the highest in two weeks, compared with the average of $111.16 this year. Soybean oil for July delivery climbed as much as 0.6 percent to 58.84 cents a pound.

January-delivery palm oil on the Dalian Commodity Exchange fell 0.3 percent to close at 9,262 yuan ($1,430) a ton. Soybean oil for delivery in the same month dropped 0.3 percent to 10,302 yuan a ton at the close.

CME Group Inc.’s most-active September palm-oil contract, pegged to the Malaysian benchmark, dropped 0.7 percent to $1,111.25 per ton.