Palm Oil Advances to 15-Month High on Supply Outlook Amid Drought, La Nina

Palm oil climbed for a fourth day to the highest level in 15 months on concern that the La Nina weather event may disrupt harvesting in growing regions and as a drought in Russia reduces global grain supply. 

October-delivery futures gained 70 ringgit, or 2.6 percent, to close at 2,731 ringgit ($869) a metric ton on the Malaysia Derivatives Exchange, the highest level since May 13, 2009. The advance was the most in five months. 

May-delivery soybean oil on the Dalian Commodity Exchange surged 174 yuan, or 2.1 percent, to 8,286 yuan ($1,225) a ton, the highest since September 2008. 

Wheat prices rallied to a 23-month high on Aug. 6 as Russia halted grain exports after dry weather cut output and flooding in Canada ruined crops. 

Palm oil harvesting in Malaysia, the world’s second-biggest producer, may be disrupted in November and December as a La Nina weather event causes flooding in major growing areas, the country’s forecaster said last week. 

“Bad global weather phenomena, such as more floods and what’s happening in Russia, are stoking concerns on global grain supply,” Cao Huimin, analyst at China Cereals and Oils Business Net, said by phone from Beijing. “Since agricultural products compete for land, it’s helping oilseeds.”

Palm oil must rise “rapidly” to cool export demand as output declines in Malaysia and weather damages canola crops in Europe and Canada, Dorab Mistry, a director at Godrej International Ltd. said last week. Godrej is one of India’s biggest cooking oil importers.

Price Rebounds

Palm oil has rebounded 20 percent from an almost eight- month low on July 7 on speculation that demand may rise in Asian nations and futures will track advances in crude oil, soybeans and equities. 

China, India, Pakistan and Indonesia celebrate festivals in the three months ending September, typically stoking edible-oils demand. 

Palm oil exports from Malaysia climbed 4.4 percent in July to 1,412,300 tons from a month earlier, market surveyor Intertek said July 31. Rival Societe Generale de Surveillance said sales gained 4.7 percent to 1,402,317 tons last month. 

Palm oil stockpiles in Malaysia touched a 10-month low of 1.45 million tons in June, the board said July 12. Shipments advanced 5.5 percent to 1.44 million tons last month, it said. 

The Malaysian Palm oil Board will release July’s production, inventory and export data tomorrow. 

Weather Factor

“On the global front weather has been playing hide and seek; at one part we have excess of rains whereas in other areas soil moisture has been totally soaked up,” AnandRathi Commodities Ltd. said today in a note to clients. 

The company forecast palm oil to rise first to 2,800 ringgit a ton, then to 3,000 ringgit.

December-delivery soybean oil jumped as much as 2 percent to 42.96 cents a pound in Chicago, the highest intra-day level since October 2008. 

That narrowed the vegetable oil’s premium over palm oil to $78.37 a ton from $84.14 on Aug. 6, according to Bloomberg data. 

CME Group Inc.’s October-delivery palm oil contract, pegged to the Malaysian benchmark price, jumped as much as 3.8 percent to $869 a ton, the highest price since the exchange began trading the product in May.Source: Bloomberg