Palm oil gains ahead of USDA; crude supports

JAKARTA: Malaysian palm oil climbed more than 1 percent on Thursday as investors positioned themselves ahead of the release of a US government agriculture report later, with additional support from strong crude prices.

Analysts expect the US Department of Agriculture (USDA) monthly supply and demand report at 1230 GMT to cut the end 2010/11 estimate for US corn stocks to 706 million bushels, from 730 million bushels forecast in May.

The benchmark August crude palm oil contract on the Bursa Malaysia Derivatives Exchange rose as much as 1.2 percent to a peak at 3,355 Malaysian ringgit ($1,112) a tonne. It was last at 3,334 ringgit.

"We've been down a couple of days but there is a strong showing in crude," said one trader. "People are taking this as an opportunity to cover positions because it offers protection against the USDA tonight.

"The turnaround in weather problems in the US has only occurred in the last few days, which will not be taken into account in the USDA numbers."

Traded volume for the benchmark month stood at 4,278 lots of 25 tonnes each, versus 11,605 lots on Wednesday. On Wednesday, benchmark prices slipped to a three week low at 3,313 ringgit.

US soyoil for July delivery and China's most-active January 2012 soybean oil were steady.

In related markets, Brent crude rose to $118, after Saudi Arabia failed to convince OPEC to raise output targets and data showed US crude stocks fell sharply last week.

On a busy data calendar this week, the Malaysian Palm Oil Board is due to release stocks, export and production numbers on Friday.

Stocks in Malaysia are seen rising to a 16-month high in May as production jumps, although traders are waiting to see if cargo surveyors show strong demand from buyers eager to restock on the current price correction.

"Export rumours will come out later today," said another trader. "It's a flip of a coin."

"Any number below 1.6 (million) would be considered on the friendly side," he added on stock levels.

On Friday cargo surveyors Intertek Testing Services and Societe Generale de Surveillance are scheduled to issue June 1-10 palm oil export numbers.

"I see prices moving north," said a palm oil analyst on the second half of 2011. "There is no room for any setback in production, so anything that crops up -- like weather -- will be a positive catalyst for prices.

"In the short term we will probably see some easing, but all depends on the progress of the US soybean plantings ... overall, I don't see CPO prices going below the 3,000 ringgit level."

Copyright Reuters, 2011