Crude Palm Oil Rises to 5-Week High on Weather Worries

Crude palm oil futures on Malaysia’s derivatives exchange ended higher Wednesday, in line with gains in the Dalian edible oil complex due to growing concerns about hot and dry weather in major soybean growers Argentina and Brazil.

Traders are turning their focus from euro-zone debt issues to weather developments in South America and Malaysia.

The benchmark March contract on the Bursa Malaysia Derivatives exchange ended 0.8% higher at MYR3,185 a metric ton after rising as much as 1.5% to MYR3,205/ton, the highest since Nov. 22.

Dalian May palm oil ended up 1% at CNY7,972/ton while the most actively traded September soybeans settled 0.5% higher at CNY4,334 /ton.

“Concerns that [vegoil supply] shortages will emerge spurred investors to cover shorts today,” a broker at a foreign brokerage house in Kuala Lumpur said.

As soybean crops are close to the reproductive stages of development, persistent dryness driven by a La Nina event could cause heat stress and limit production potential.

In Asia, heavy rains brought on by the northeast monsoon in peninsular Malaysia and the La Nina are slowing harvesting rounds and disrupting transportation of the cooking oil from refineries to ports.

“CPO output in December may be down 5%-10% from the previous month,” a company executive at a major plantation firm in Kuala Lumpur said.

Malaysia’s weather office said in a Dec. 28 advisory that heavy rainfall is expected over major oil palm growing regions in Johor and Pahang until Friday.

The two states together account for a third of Malaysia’s CPO production.

In the cash market, refined palm olein for January was offered $2.50 higher at $1,087.50/ton while cash CPO for prompt shipment was offered at MYR3,200/ton.

Open interest on the BMD was 111,292 lots, versus 111,786 lots Tuesday. One lot is equivalent to 25 tons.

A total of 27,2160 lots of CPO were traded versus 12,712 lots Tuesday.

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