Palm Oil Dips Below 2,000 Ringgit for First Time Since March 31

July 8 (Bloomberg) -- Palm oil futures dropped below 2,000 ringgit for the first time since March 31 after soybean declined and on concern a seasonal increase in production in the second half would swell stockpiles and damp prices.

Soybeans declined to the lowest in more than three months yesterday in Chicago. Shifts in the oilseed’s price can lead trends in palm oil as the two are used in the same applications, including cooking and biofuel.

Palm oil for September delivery on the Malaysia Derivatives Exchange slipped as much as 4.1 percent to 1,984 ringgit ($557) a metric ton. It paused at 1,989 ringgit at the 12:30 p.m. break in trading.

“It will probably settle slightly below this level for some time as supply starts picking up,” Alain Lai, an analyst at UBS Securities Malaysia Sdn. in Kuala Lumpur, said by phone. “The market has turned from bullish to bearish.”

Indonesia and Malaysia, which account for about 90 percent of palm oil production, have forecast record output this year. More than half of annual output in the two countries usually occurs in the second half.

Stockpiles in Malaysia gained for the first time in six months in May as production climbed 8.5 percent, the biggest month-on-month increase in a year, the Malaysian Palm Oil Board said June 10. It will announce June data on July 10.

Inventories will remain high if export demand from China and India, the biggest buyers of the tropical oils, slows.

Malaysia’s exports gained 2.3 percent to 1,220,513 tons in May, the Palm Oil Board said. Preliminary data from independent surveyors shows June exports were little changed, with Societe Generale de Surveillance reporting an estimate of 1,227,663 tons and Intertek 1,230,741 tons.

Dalian Prices

Palm oil for January delivery in Dalian dropped as much as 4.8 percent to 5,500 yuan ($805) a ton, and closed the morning trading session at 5,530 yuan. China is the biggest consumer of edible oils and the largest importer of palm oil.

Soybeans for November delivery on the Chicago Board of Trade yesterday fell by the 70 cent daily limit to $8.93 a bushel, the lowest since March 16. Soybean oil for December delivery dropped 3.9 percent to 33.72 cents a pound yesterday.

U.S. soybean acreage will be the biggest ever this year after rains forced farmers to switch away from corn, cotton and wheat, which need to be planted earlier, the Department of Agriculture said June 30.

“Supply is picking up from the U.S.,” UBS’s Lai said. “Potentially in the first quarter next year, supply will recover from South America.”

The U.S. crop is crucial after soybean stockpiles left over from last year’s harvest totaled 597 million bushels as of June 1, a five-year-low, the USDA data showed. Argentina, the largest soybean oil exporter, lost one-quarter of its soybean crop this year because of a worst drought in seven decades.

The risk of El Nino weather developing across the Pacific Basin has grown, Australia’s Bureau of Meteorology said today. El Nino causes drier-than-usual conditions in Asian countries including Indonesia and Malaysia.

“Conditions have reached a point that, should they persist at such levels through the remainder of the southern winter and into spring, 2009 will be considered an El Nino year,” the bureau said on its Web site.