24/08/2010 (Bloomberg) - Palm oil dropped after the discount to soybean oil narrowed to the lowest in more than four months, boosting the appeal of the rival oil for use in food and fuels as U.S. soybean supplies were forecast to increase.

The November-delivery contract declined 2 percent to 2,510 ringgit ($797) a metric ton on the Malaysia Derivatives Exchange, the lowest closing price since July 28. Futures have tumbled 8.8 percent since reaching a 15-month high on Aug. 9.

Soybean oil’s premium over palm oil narrowed to $60.87 a ton yesterday, the smallest since April 6, according to data on the Bloomberg. It was $79.81 today, compared with a 12-month average of $112.34. The oils are direct substitutes.

“A bumper soybean harvest in the U.S. is sure to keep palm oil under pressure,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. in Kuala Lumpur. “There’s been an accumulation of bearish news for palm oil, with exports being lackluster and no real weather-related stress evident on the U.S. soybean crop.”

The soybean crop will total 3.5 billion bushels, topping the U.S. Department of Agriculture’s forecast of 3.43 billion, according to the Professional Farmers of America newsletter last week. Soybeans have slipped 4.8 percent since reaching $10.49 a bushel on Aug. 5, the highest level in almost seven months.

November-delivery soybeans fell as much as 0.7 percent to $9.99 on the Chicago Board of Trade today. December-delivery soybean oil rose as much as 0.8 percent to 40.15 cents a pound.

Malaysian Stockpiles
Palm oil stockpiles in Malaysia, the world’s second-biggest producer, may gain from their lowest level in a year as sales to buyers including China and Pakistan drop, ECM Libra’s Tan said.

Malaysia’s palm oil exports fell 3.8 percent to 837,526 tons in the first 20 days of August compared with July, according to surveyor Societe Generale de Surveillance. Sales to China, Pakistan and the U.S. fell, while those to the European Union climbed, SGS data showed.

“Production is likely to be slightly higher in August and with lackluster exports, inventory may gain,” Tan said. “That can be bearish for the market for the rest of the week.”

Malaysia’s ringgit yesterday reached 3.1238, the strongest level since October 1997, making exports more expensive for holders of other currencies. The ringgit fell the most in two weeks today to 3.1465 per dollar as of 4:35 p.m. today in Kuala Lumpur, according to data compiled by Bloomberg.

CME Group Inc.’s December-delivery palm oil contract, which is pegged to the Malaysian benchmark, tumbled as much as 2.7 percent to $788 a ton. On the Dalian Commodity Exchange, palm oil for delivery in January dropped 0.4 percent to 6,950 yuan ($1,022) a ton at 3:30 p.m. close, while May-delivery soybean oil retreated 0.6 percent to 7,934 yuan a ton.