Malaysian palm oil futures extended gains for a third day on Wednesday ahead of a US agriculture report that may show tighter grains and oilseeds supply in the months to come. The US Department of Agriculture May supply and demand report is expected to confirm the US winter wheat crop has shrunk to its lowest in five years, a scenario that will boost soybeans and palm oil.
Palm oil has lost about 14 percent so far this year on rising stocks and still weak demand. It also fell to a six month low last week along with a broad sell-off in commodities as traders initially fretted over the state of the US economy and cut risk taking.
"External markets are giving the boost to palm oil ahead of the US report. There are some weather concerns in Europe with regards to grains that could boost all the agriculture markets," said a trader with a foreign commodities brokerage. At the close, the benchmark July crude palm oil contract on Bursa Malaysia Derivatives rose 0.3 percent to 3,269 Malaysian ringgit ($1,093) per tonne. It earlier hit a peak at 3,283. Overall traded volume was 12,155 lots of 25 tonnes each, compared with 11,373 lots on Tuesday.
A Reuters technical analysis showed the benchmark palm oil contract is expected to correct moderately to 3,215 ringgit per tonne before choosing its next direction. "The May contract is at much higher level compared to the other contracts, we are seeing prompt demand," said another trader. Malaysian palm oil exports appear to be recovering in the first ten days of May with cargo surveyor Intertek Testing Services reporting an increase of 17 percent from the same period a month ago.
Higher exports come at a time when stocks in Malaysia, the No 2 producer, rose at a slower-than-expected pace that may eventually support prices. Hamburg-based oilseeds analysts Oil World reinforced that view, saying in a report palm oil demand is likely to continue rising in May because of its competitive price compared with rival vegetable oils including soyoil.
US soyoil for July delivery was flat in Asian hours ahead of the USDA report, which will give the first estimate of ending stocks for soybean crops and update global crop production numbers in Brazil and Argentina. The most active January 2012 soyoil on China's Dalian Commodity Exchange inched up 0.3 percent.