Palm Oil Declines as Prices at 17-Month High Encourage Selling

Feb 24, 2014 6:43 am ET

Feb. 24 (Bloomberg) -- Palm oil dropped as a rally to the highest level in 17 months spurred investors to lock in gains.

The contract for May delivery fell 0.5 percent to close at 2,741 ringgit ($835) a metric ton on the Bursa Malaysia Derivatives. Futures earlier rose to 2,777 ringgit, the highest since September 2012, on speculation that excess rain in Brazil would hurt soybean crops in the largest exporter, boosting demand for the tropical oil. Prices rose 3.4 percent last week.

“This is a technical reversal,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore Pte. “It’s profit-taking combined with indicators pointing that it’s overdone. Prices have reached a certain overbought condition.”

The 14-day relative strength index was 71 today, above the 70 level, which is a technical signal to some analysts that an asset’s price has risen too fast and is poised to decline.

Some areas of Brazil’s main soybean-growing state of Mato Grosso received 230 millimeters (9 inches) of rain in the past week, reducing the quality of beans and paring yields, AgRural, a researcher, said today. Crops in the area were being damaged by fungal disease because of excess humidity in some areas, it said. Harvesting in the entire country was 30 percent complete compared with 21 percent last week and 27 percent a year ago.

“If the soybean crop is damaged, or the harvests may not come in as expected, that will provide some support for palm,” said Donny Khor, the deputy director of futures and commodities at RHB Investment Bank Bhd. in Kuala Lumpur. “If there is lower production, this will push prices in soybeans, and this will help to push prices in palm as well.”

Soybean oil, an alternative in food and fuel, for May delivery fell 0.4 percent to 41.08 cents a pound on the Chicago Board of Trade, while soybeans rose 0.9 percent to $13.7175 a bushel after reaching $13.74, the highest since Sept. 16.

Refined palm oil for May delivery advanced 1.5 percent to close at 6,164 yuan ($1,011) a ton on the Dalian Commodity Exchange. Soybean oil rose 0.7 percent to end at 6,818 yuan.

--Editor: James Poole