Palm oil retreats on better US soy outlook

The US Department of Agriculture unexpectedly raised its US crop production outlook by 1 percent in a monthly report, despite forecasts for a smaller crop due to hot, dry weather this summer.

While this is a small rise, it adds to the view that global edible oil supplies will improve as traders see Malaysian palm oil production and stocks recovering this month as estate workers return from a Muslim holiday.

"The question is whether palm oil futures will drop and stay below 3,000 ringgit for an extended time period," said a trader with a foreign commodities brokerage.

"My guess is that could happen since Malaysian and Indonesian production is recovering this month and could climb significantly," he added.

Benchmark November palm oil on the Bursa Malaysia Derivatives Exchange fell 1.7 percent to end at 3,019 Malaysian ringgit ($996) per tonne.

Prices the previous day hit a near one-month peak at 3,076 but fell to a near one-week low at 3,012 on Tuesday.

Traded volumes for the November contract stood at 9,867 lots of 25 tonnes each compared with 5,862 lots on Monday.

Signs of a build up in palm oil stocks are growing as cargo surveyors have reported sharp declines in Sept. 1-10 Malaysian exports.

Industry regulator Malaysian Palm oil Board (MPOB) said on Monday that August exports fell 2.7 percent after mostly Muslim countries had finished shipping out cargoes for Eid.

"I expected it because by the end of Ramadan month -- in the last seven or eight days -- nothing moves," Pawan Kumar, a Singapore-based analyst at Rabobank.

"But this month is down because the Indonesian tax structure changes are due ... so people might be waiting because they say the export tax will be reduced."

Indonesia, the top palm oil producer, announced changes to its export tax cap in August.

Oil pared early gains after the International Energy Agency cut its estimate for demand growth and raised its supply forecast on Tuesday, countering support provided by rebounds in the euro and in stock markets.

Vegetable oil markets largely ignored the gains in crude oil as the improved outlook for the US soy crop weighed.

US soyoil for October delivery slipped, while the most active May 2012 soybean oil contract on China's Dalian Exchange also eased.

Copyright Reuters, 2011