12/10/2010 (Bloomberg) - Palm oil dropped from a 26-month high amid speculation that output from Malaysia, the second- largest producer after Indonesia, may rebound this month.

The December-delivery contract fell as much as 1.5 percent to 2,882 ringgit ($927) a metric ton on the Malaysia Derivatives Exchange and was at 2,895 ringgit at the 12:30 p.m. break. Yesterday, the price surged 6 percent to close at 2,925 ringgit, the highest finish for a most-active contract since Aug. 1, 2008.

Output in Malaysia fell 2.7 percent to 1.56 million tons in September, the Malaysian Palm Oil Board said yesterday, leaving stockpiles little changed at 1.71 million tons. Exports surged 21 percent to 1.47 million tons with major festivities in Indonesia, Malaysia and China during the month, the board said.

“We expect production to recover significantly in October,” AmResearch Sdn. said in a report today, noting that last year’s on-month gain for October was 25 percent. Last month’s drop was due to workers taking leave for the Hari Raya festive period, it said, referring to the Muslim holiday.

Malaysia’s palm oil exports may reach 65.2 billion ringgit this year from 49.5 billion in 2009, state news agency Bernama said today, citing Plantation Industries and Commodities Minister Bernard Dompok. Prices have averaged 2,541 ringgit this year compared with 2,240 last year, according to Bloomberg data.

October Shipments
In the first 10 days of October, Malaysia’s exports fell 0.4 percent to 395,015 tons from the same period in September, independent market surveyor Intertek said yesterday. Shipments fell 0.2 percent to 382,828 tons, rival Societe Generale de Surveillance said.

Palm oil surged yesterday after the U.S. Department of Agriculture said on Oct. 8 that soybean output in the U.S. will be 3.408 billion bushels (93 million tons), less than the 3.483 billion projected in September. Soybeans are crushed to make an oil that competes with palm oil for use in foods and cooking.

The USDA downgrade, coupled with possible supply disruptions caused by heavier-than-usual La Nina rains, meant that palm oil prices “may be ripe for a further upswing,” Ivy Ng, an analyst at CIMB Investment Bank Bhd., said in a report yesterday. The brokerage raised its palm oil forecast 9 percent to an average 2,630 ringgit a ton this year.

CME Group Inc.’s December palm oil contract, which is pegged to the Malaysian benchmark price, dropped 0.3 percent to $940.75 to end a six-day rally. Palm oil on the Dalian Commodity Exchange for May delivery was little changed at 8,190 yuan ($1,228) a ton at the 11:30 a.m. trading break.