Palm Oil Gains on Speculation Drought to Harm Oilseed Supply

Palm oil gained on renewed concern that the worst U.S. drought in more than 50 years will hurt the production of soybeans, reducing global oilseed supplies and increasing demand for the tropical commodity.

The October-delivery contract advanced 0.9 percent to close at 2,951 ringgit ($930) a metric ton on the Malaysia Derivatives Exchange. Earlier, the contract fell as much as 1 percent.

Midwest temperatures may remain 5 to 8 degrees Fahrenheit above normal, and while showers were forecast over the next two weeks, rains will still be below normal, Joel Widenor, co- founder of Commodity Weather Group LLC, said in a note yesterday. The U.S. is the largest producer of soybeans, which like the palm fruit can be crushed to provide an oil for foods and fuel.

“The story on the drought is still there,” Ivy Ng, an analyst at CIMB Group Holdings Bhd. (CIMB), said in Kuala Lumpur. “The market will remain focused on the weather and the crop development in the U.S.”

About 31 percent of the U.S. soybean crop was in good or excellent condition as of July 22, down from 34 percent a week earlier and the lowest for the date since 1988, the U.S. Department of Agriculture said July 23.

December-delivery soybean oil climbed 1.8 percent to 53.25 cents a pound on the Chicago Board of Trade. Most-active soybeans, which have rallied 32 percent this year as the Midwest drought deepened, climbed 1.1 percent to $15.87 a bushel.

Palm oil for January delivery fell 0.7 percent to close at 7,652 yuan ($1,197) a ton on the Dalian Commodity Exchange. Soybean oil for the same month dropped 0.6 percent to end at 9,336 yuan a ton.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net