Palm Oil Declines as Exports Slow During High Production Season

Aug. 25 (Bloomberg) -- Palm oil futures dropped on concern that demand is slowing as the industry heads into the highest production months.

Malaysian production gained 3 percent to 1.49 million metric tons in July, a fifth month of expansion, the Malaysian Palm Oil Board said Aug. 10. For the first 25 days of August, exports fell 10 percent to about 1 million tons, compared with the same period the previous month, independent surveyor Intertek said today.

“The industry could see some downward action in the nearer term as we go into the high production season,” said an ECMLibra Research report, saying prices may average 2,300 ringgit ($654) a ton this year. The commodity has averaged 2,198 ringgit this year.

Palm oil for November delivery dropped as much as 2.2 percent to 2,323 ringgit a ton and last traded at 2,352 ringgit at 11:44 a.m. on the Malaysia Derivatives Exchange.

Indonesia and Malaysia account for 90 percent of world palm oil output. Typically, oil palms produce 55 percent of annual production in the second half.

Still, contracts for delivery in 2010 are poised to rise, ECMLibra said. The commodity has gained 38 percent this year amid speculation drought damage to soybean crops in Argentina, Brazil and India would increase the appeal of palm oil, which is a direct substitute for soybean oil.

“Our study suggests that with production coming in soft for the rest of the year and exports maintaining levels which are about 5 to 10 percent higher than 2008, the next production down-cycle could see the industry in a supply shortage situation,” ECMLibra said of the demand-supply outlook.

Oil-palm yield typically slows at the end of the year and drops in the first quarter.

“This would inadvertently bring prices closer to the 3,000 ringgit level,” the report said.

Soybeans for November delivery in Chicago dropped 0.8 percent to $9.99 a bushel in after-hours trading. December- delivery soybean oil dropped 0.6 percent to 37.5 cents a pound, making it 24 percent more expensive than palm oil, according to Bloomberg data.