Malaysian crude palm oil fell on Friday on a larger than expected drop in overseas demand although concerns that heavier rains will slash output kept the market on course for a second weekly gain. Exports of palm oil fell sharply in the first ten days of December after heavy buying last month, data from a cargo surveyor showed, while consumers shift to competing soyaoil as it does not solidify like palm oil during winter.
But expectations of heavier rains disrupting the harvest of oil palm fruits and triggering floods in Malaysian estates limited losses. These concerns were reflected in an industry regulator's report that showed production in November tumbled and stocks hit a four-month low.
"We expected a moderation in exports but December 1-10 data for Malaysia was a sharp decline partly due to the cold weather and perhaps the fact that prices are little too high," said a trader with a local commodities broker. "But palm oil is now a weather market and whatever losses out there could be quickly recouped."
The benchmark February 2011 crude palm oil on the Bursa Malaysia Derivatives Exchange fell 0.2 percent to 3,590 ringgit ($1,142) by the midday break and easing from a 29-month high hit the day before. Traded volumes stood at 5,677 lots of 25 tonnes each. Palm oil, which has gained nearly 35 percent this year, also drew support from grains markets pricing in heavy rains pounding Australia's wheat crop.
Dry weather in the Americas may hurt soya yields in Argentina and put the US wheat crop at risk. But a Reuters technical analysis showed palm oil could be due for a deep correction, as the rally is seen limited to 3,700 ringgit per tonne. Other vegetable oil markets eased ahead of key US crop report expected to reflect tight supplies and strong Chinese food demand. US soyaoil for December delivery slipped 0.1 percent and the most active September 2011 soyaoil contract on China's Dalian Commodity Exchange fell 0.3 percent.
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