SINGAPORE: Malaysian crude palm oil futures eased on Wednesday as lingering European debt worries overshadowed expectations that erratic weather in south America and southeast Asia could limit edible oil supply.
Investors shifted their focus back to Europe ahead of a Portugal debt sale and as Greece resumes its debt restructuring talks.
But prospects of worsening drought in Argentina and wet weather in Malaysia limited losses for palm oil futures, which are down 0.5 percent so far this year.
"For the next two days, things will slow down as the long weekend is coming and traders will be off. We can look forward to some position squaring," said a trader with a foreign commodities brokerage in Malaysia, referring to the Lunar New Year holidays next week.
By the midday break, benchmark April palm oil futures on the Bursa Malaysia Derivatives Exchange inched down 0.2 percent to 3,158 ringgit ($1014) per tonne.
Traded volumes were thin at 7,889 lots of 25 tonnes each, compared to the usual 12,500 lots.
Reuters market analyst Wang Tao revised his price forecast, saying that the bullish target at 3,244 ringgit has been aborted and a more realistic target will be 3,108 ringgit.
The Malaysian Meteorological Department issued a warning that heavy rain may cause floods over low-lying parts of Pahang, a key oil palm grower in the country that accounts for about 14 percent of national output.
Investors are worried that wet weather may hamper the production and distribution process of palm oil, lowering supply and pushing prices up.
But slowing demand could help ease pressure from tightening stocks as top buyers including China and India cut back orders.
Cargo surveyor data showed an 11 percent drop in Malaysian's palm oil exports for the first 15 days in January.
Top producer Indonesia, exports declined 29 percent in December compared to November based on Reuters calculation.
In related markets, Brent crude rose above $112 on Wednesday as the dollar weakened and a slew of positive economic indicators, from China to the United States, eased demand concerns triggered by the debt crisis in Europe.
The US soyoil contract for March delivery were almost flat while the most active September 2012 soyoil contract on China's Dalian commodity exchange edged up 0.2 percent.
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