27/04/2010 (Bloomberg) - Palm oil fell for the first time in four days as the outlook for substitution demand eased after its discount to rival soybean oil narrowed.

July-delivery futures dropped 0.4 percent to 2,550 ringgit ($801) a metric ton, declining from an 11-day high yesterday, on the Malaysia Derivatives Exchange.

“With soy inventories in 2010-11 expected to reach near- record levels and the discount between crude palm oil and soy oil quite narrow currently, we see limited upside to crude palm oil prices in 2010,” said Sunaina Dhanuka, a plantation analyst at Macquarie Securities in Kuala Lumpur.

Soybean oil in Chicago for July delivery gained 0.2 percent to 39.80 cents a pound at 6:09 p.m. Singapore time. That put its premium over palm oil at $78.90 a ton, according to Bloomberg data. That compares with a 12-month average premium of $130.63. The premium was at its narrowest in three weeks at yesterday’s close, spurring today’s advance in soybean oil.

The U.S., Brazil and Argentina, the largest producers of soybeans, will contribute to a record crop this year. Soybeans are crushed for meal for poultry and oil for food and biofuels.

Palm oil, the cheapest feedstock for biofuels, followed crude oil lower. The tropical commodity has tracked crude oil’s weekly movements for the past 11 weeks. Crude oil in New York for June delivery fell as much as 1.4 percent during the Asian day and traded at $83.31 a barrel at 6:09 p.m. Singapore time, down 1.1 percent from yesterday.

In China, the largest consumer of edible oils, palm oil traded in Dalian rose a third day, gaining 0.4 percent to 7,026 yuan ($1,029) a ton. Dalian soybean oil was little changed, at 7,950 yuan a ton.

Indonesia, the largest producer of palm oil, accepted bids for 7,000 tons in auctions today, fetching between 7,305 rupiah a kilogram ($811 a ton) and 7,526 rupiah a kilogram.