Malaysian palm oil falls

Malaysian palm oil futures fell as much as 2.6 percent on Friday to its lowest in nearly one month amid a broad-based sell-off in commodities, as risk-averse investors worried about the health of the US economy ahead of a key jobs data. The benchmark October contract on the Bursa Malaysia Derivatives Exchange traded at 3,054 Malaysian ringgit ($1,024) per tonne, but off an earlier low of 3,021 ringgit - lowest since July 6.
Traded volumes for the contract were 7,617 lots of 25 tonnes each, compared to 10,163 lots on Thursday. Benchmark palm oil prices, which hit a near two-week high at 3,144 ringgit earlier this week, are headed for a weekly drop of 1.4 percent. "It is definitely driven by the equity sell-off overnight and also led by weakness in crude oil and other agriculture markets," said Chen Xin Yi, a Singapore-based analyst at Barclays Capital.
"It is primarily due to fear, about what to expect of the US economic recovery because there has been a soft patch in terms of economic data coming out." US crude slid to fresh multi-month lows on Friday, while copper and grains stretched losses and Shanghai commodity futures plunged as investors fled riskier assets on mounting concerns about a slowing global economy.
Overnight, a slight drop in initial claims for US state jobless benefits failed to dispel the gloom after other dismal economic indicators in recent days. This week, data from the world's top economy showed that the pace of growth in the services sector ticked down to the lowest level since early 2010, while manufacturing growth also stuttered.
"We tend to think that this is probably just short-term volatility because we still expect the second half US economic data to be better," added Xin Yi on the macro outlook. Markets now await the release of July US jobs data at 1230 GMT. The numbers may help calm nerves with a pick-up in employment seen although the unemployment rate is expected to remain steady at 9.2 percent.
In related markets, US crude fell below $86, heading for its biggest weekly drop since early May. US soybeans for November delivery hit a near one-month low, and the most active May 2012 soyoil on China's Dalian Commodity Exchange touched its lowest level since July 4.
Cooler temperatures and showers in the US Midwest from Thursday through at least next week are expected to buoy corn and soybean prospects after a heat wave trimmed yield potential. "We didn't see the weather hitting soy crops badly," said a Jakarta-based trader. "Soy affects palm oil as well, so that's why the importance for us." US corn and soybean yields are likely to fall below trend values in 2011 because of hot weather in July, although the degree of the shortfall will depend on the weather in August, two University of Illinois researchers said late on Thursday.
One supporting factor has been data showing that exports of Malaysian palm oil products for July jumped 13.5 percent to 1,628,688 tonnes. Analysts say buyers are turning to Malaysia rather than Indonesia, as sellers in the latter build up stocks in anticipation of an expected change in the export tax rate this month.
In July, palm oil stocks in Malaysia, the world's No 2 producer, likely fell from an 18-month high, as combined export and domestic demand outpaced production, a Reuters survey of five plantation houses showed on Friday. Traders say the fasting month of Ramazan will also lead to lower output in Indonesia and Malaysia, the top two global palm producers. "The impact would be positive demand prior to the whole festivities, so a lot of people stock up in Ramazan month," said a Kuala Lumpar-based analyst. "Production tends to fall in the last week of the fasting month."