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Soybean Oil Premium to Palm May Fall on South America, LMC Says

The premium soybean oil commands over palm oil may drop by the middle of the year as South America’s soybean harvest climbs to a record, LMC International Ltd. said.

Soybean oil in Chicago was about 14.51 cents a pound more expensive than palm oil on the Malaysia Derivatives Exchange as of yesterday, almost triple the price difference at the same time in 2012, Bloomberg data show. Combined soybean production in Brazil, set to overtake the U.S. as the world’s top shipper, and Argentina may rise to a record 136.5 million metric tons, up 28 percent from a year earlier when dry weather cut yields, the U.S. Department of Agriculture says.

Soybean oil touched a one-year high in September as U.S. production was hurt by drought, while palm oil fell to a three-year low in December as ample output in Indonesia and Malaysia, the two biggest producers, sent global stockpiles to a record. Soybean oil finished last year down 5.2 percent, outperforming palm oil’s 23 percent slide. Lower palm prices probably will boost demand for the oil’s use in biodiesel by summer, James Fry, chairman of LMC, said in Brussels yesterday.

“Demand for palm oil tends to rise, production tends to slow so palm oil stocks come down” by that time of year, said Fry, whose commodity-research company is based in Oxford, England. “At the same time, the premium for soy will come under pressure from much better Argentine, Paraguay, Brazil and Bolivian crops.”

Palm oil for May delivery closed at 2,397 ringgit ($776) a ton on the Malaysia Derivatives Exchange yesterday, the lowest for a most-active contract since Jan. 17 and equal to about 35 cents a pound. Global inventories reached a record 10.5 million tons in January and may drop to about 9 million tons by the end of March as demand exceeds production, researcher Oil World said Feb. 19. Soybean oil for May delivery was at 49.56 cents a pound yesterday on the Chicago Board of Trade, near a six-week low.

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