Malaysian crude palm oil eased on Tuesday, ahead of a key US Department of Agriculture report that will likely trim the agency's forecast for South American soya output due to a lingering dry spell. The USDA crop report due on Wednesday may also show lower soyabean stocks driven by strong Chinese export demand, suggesting that food demand in Asia is still going strong.
Lower soyabean crops and ending stocks means less will be available for crushing into soyaoil and buyers may have to rely more on palm oil. "Palm oil is retracing a little but it could start rallying in line with soyaoil if the USDA shows a significant drawdown in soya stocks and a weaker soya crop in Argentina," said a trader with a foreign commodities brokerage.
"Part of the profit-taking in palm oil may have to do with the fact that Brazil could have a good soyabean crop that will mitigate the losses in Argentina," the trader added. Benchmark March 2011 crude palm oil on Bursa Malaysia derivatives settled down 27 ringgit, or 0.7 percent, at 3,703 ringgit($1,202) a tonne. Overall traded volume rose to 24,867 lots of 25 tonnes each, compared to the usual 15,000 lots.
Malaysian investment bank Hwang-DBS expects palm oil supply to remain tight, as yields in the first two months of this year will fall further due to the impact of severe drought early last year. "Crude palm oil prices are expected to remain high in Q1 2011. And, if the soyabean production outlook in Argentina deteriorates, palm oil prices could strengthen further," the report said.
"New catalysts need to come to play to prevent palm oil prices from undergoing a deep correction, which we believe is already in the making," said OSK Investment bank in a research note. US soyaoil for January delivery rose 0.3 percent, while the most active September 2011 soyaoil contract on China's Dalian Commodity Exchange inched up.