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Palm Oil Advances for Second Day on U.S. Soybean Crop Concerns

July 27 (Bloomberg) -- Palm oil climbed for the second day on speculation that worsening soybean crop conditions in the U.S. may boost demand for the tropical oil.

The October-delivery contract gained as much as 0.6 percent to 3,138 ringgit ($1,067) a metric ton on the Malaysia Derivatives Exchange and closed at 3,130 ringgit in Kuala Lumpur. Futures were also boosted by a weaker dollar and expectations of stronger demand next month.

“Prices are gaining because of the weather conditions in the U.S.,” Ivy Ng, an analyst at CIMB Investment Bank Bhd., said by phone from Kuala Lumpur.

The U.S. soybean crop condition worsened last week as hot and dry weather increased stress on developing plants. An estimated 62 percent of the soybean crop in the world’s biggest exporter was in good or excellent condition as of July 24, compared with 64 percent a week earlier and 67 percent a year ago, the U.S. Department of Agriculture said on July 25.

A weak U.S. currency also helped “as people switch out of the dollar into commodities and other assets on uncertainty over the U.S. debt issue,” Ng said.

The dollar weakened against most of its major peers as President Barack Obama and Congress remained at odds over plans to raise the U.S. debt limit and prevent a default before an Aug. 2 deadline. The stalemate may cost America its AAA rating, adding $100 billion a year to government costs while dragging down economic growth, according to Wall Street bond dealers.

Festival Demand

Expectations that demand will improve in the Muslim fasting month of Ramadan, which starts in August this year, is also supporting palm oil prices, Ng said. Overall consumption of food staples and cooking oils usually climbs during Ramadan when Muslims break their daylong fast with communal meals.

Traders are also speculating on whether China, the biggest consumer of vegetable oils, will lift controls on retail prices, she said. China told suppliers to cap prices last year to tackle inflation.

Malaysian exports have gained 2.3 percent to 1.28 million tons in the first 25 days of July from the same period in June, surveyor Intertek said on July 25. Shipments rose 1.9 percent to 1.29 million tons, Societe Generale de Surveillance said.

“We may see more Indian imports of crude palm oil in July as demand in the spot market is high,” Kishore Narne, head of research at Anand Rathi Commodities Ltd., said in a report today.

India, the second biggest importer of cooking oils, may import 6.6 million tons of palm oil in the year ending October, up 3.4 percent from the previous year, Sandeep Bajoria, chief executive officer of Sunvin Group, said on July 5.

Soybeans for delivery in November advanced as much as 0.4 percent to $13.945 per bushel in Chicago and traded at $13.8875 at 4:24 p.m. in Mumbai. Soybean oil for December delivery gained as much as 0.3 percent to 57.63 cents per pound.

Palm oil for May delivery climbed 0.6 percent to 9,222 yuan ($1,431) a ton on the Dalian Commodity Exchange and soybean oil for delivery in the same month added 0.4 percent to 10,310 yuan a ton.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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