Palm Oil Declines as Demand Wanes After Rally to Two-Week High

Feb. 16 (Bloomberg) -- Palm oil futures dropped in Malaysia as demand diminished after the vegetable oil’s rally last week to a two-week high.

April-delivery futures dropped 3.4 percent to 1,928 ringgit ($417) a ton on the Malaysia Derivatives Exchange. Earlier, the contract rose above 2,000 ringgit for the first time since Jan. 7.

“I don’t understand why palm oil should rise above 2,000 ringgit” a ton, said Ben Santoso, an analyst with DBS Vickers Securities Singapore. Higher prices may prevent planters from cutting down old palms, which would have reduced supply and kept prices higher, he said.

Malaysia’s palm oil exports dropped 13 percent in the first 15 days of this month from the same period in January, Societe Generale de Surveillance, an independent cargo surveyor. A total of 494,172 tons were tracked Feb. 1-15, SGS said today.

Palm oil prices have risen 12 percent in the past two weeks on concern smaller soybean crops in Brazil and Argentina, the top exporters of the vegetable oil made from the oilseed, will lower supplies at a time when oil palms in Malaysia and Indonesia are stressed from last year’s record output.

Farmers in the U.S., the world’s biggest grower of soybeans, may shift acreage to the oilseed to benefit from the shortfall in South America, likely lowering prices, Santoso said.

“The highest risk now is from the U.S. and whether they will make the shift,” he said. “If there is some shift, then there will be some correction to soybean prices in the second quarter. It’s still too early to say.”

The U.S. will announce soybean crop estimate next month.

Soybean oil for March delivery dropped 0.3 percent last week to 33.3 cents a pound in Chicago. That left it 32 more expensive than palm oil, compared with a six-month average of 58 percent, according to Bloomberg data.

The U.S. markets are closed today for a public holiday.