Palm oil drops

Malaysian palm oil futures fell their lowest in more than a week on concerns huge debt burdens in the US and Europe may prove to be unmanageable and stall growth and commodity demand. Gloomy economic sentiment pushed palm oil futures lower for a second day although a technical correction helped claw back some losses on the back of favourable demand and supply fundamentals.
"I doubt that the market could go much lower from 3,100 ringgit as the fundamentals - heavy rains and weather - can support this level," a Malaysian trader said, in reference to monsoon season that is getting aggravated by La Nina-driven rains. Benchmark February palm oil futures on the Bursa Malaysia Derivatives Exchange closed 0.5 percent lower at 3,175 Malaysian ringgit ($997) per tonne after going as low as 3,145 ringgit, a level last seen on November 11.
Overall traded volumes stood at 28,874 lots of 25 tonnes each, higher than the usual 25,000 lots. Reuters analyst Wang Tao stuck to a bearish view, saying a target of 3,134 ringgit per tonne remains in place as seen by a wave pattern and a Fibonacci retracement analysis. Indonesian Palm Oil Association was more optimistic, saying Palm oil prices will range between 3,000 and 3,400 Malaysian ringgit per tonne in the next three months, as wet weather in Southeast Asia curbs output.
In Malaysia, fundamentals are turning more bullish with media reports of heavy rains triggering some floods in a key producing state of Johor, which accounts for about a quarter of national output. The market is bracing for low production in the last quarter due to a seasonal decline in yields and the prospects of a brewing La Nina weather condition making the seasonal monsoon rains worse. That could prompt a rush for cargoes as buyers in China, India and Pakistan want to restock after major festivals and public holidays. Export data showed firm growth. US soyoil for December delivery edged up 0.3 percent on fresh buying but China's most active May 2012 soybean oil contract dropped 1.5 percent.