Malaysia palm oil tumbled to a three-week on Wednesday on a technical correction ahead of a key US crop report that is likely to show tighter supplies. Palm oil rallied to a 33-month high last week on concerns that heavy rains in palm oil-producing Southeast Asian and a dry spell in soyaoil-exporting South America will curb vegetable oil output.
But traders now feel the rally might have been overdone after Malaysian palm data showed a lower than expected decline in stocks and the Brazilian soya crop may not be as badly affected as the crop in Argentina. "The rally around the New Year went ahead of the fundamentals, to some extent. Traders need the market to ease ahead of the USDA report," said a dealer with a foreign commodities brokerage in Kuala Lumpur.
Benchmark March 2011 palm oil contract on the Bursa Malaysia Derivatives fell as much as 2.1 percent to 3,625 Malaysian ringgit ($1,180), a level unseen since December 22. The contract later settled at 3,650 ringgit. Overall traded volume shot up to 25,042 lot of 25 tonnes each, compared to the usual 15,000 lots.
Traders are also waiting for key US agriculture data due later on Wednesday, which is likely to cut the forecast for South American soya output due to dry weather and show lower US soyabean stocks. Weaker soyabean production and end-stocks suggest less crops will be available for crushing into soyaoil, and consumers may rely more on palm oil.
Other vegetable oils, which are increasingly used as a feedstock for biofuel that competes with petroleum diesel, edged higher on Wednesday as US crude steadied above $91. US soyaoil for January delivery gained 0.5 percent in Asian trade hours, while the most traded September 2011 soyaoil on China's Dalian Commodity Exchange dropped 1.1 percent.
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