Malaysian crude palm oil futures rebounded from a 3-week low on Thursday, as the worst drought in the United States since 1956 threatened to squeeze global oilseed supplies further and offset slower exports and better output in Malaysia. Oppressive heat and a worsening drought in the US Midwest pushed grain prices near or beyond records this week and raised concerns of a smaller supply of soybean oil, shifting more demand to the cheaper palm oil.
"The market is staged for a rebound as drought concerns are revived. Also, palm oil is now at a discount of over $260 to soyoil, and that will attract arbitrage activity to narrow the spread," said a dealer with a foreign commodities brokerage in Malaysia.
The benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange gained 1.7 percent to close at 3,045 ringgit ($966) per tonne after touching a low of 2,986 ringgit, a level unseen since June 28. Traded volumes stood at 31,771 lots of 25 tonnes each, higher than the usual 25,000 lots. On the technicals front, palm oil will rebound to 3,053 ringgit, Reuters market analyst Wang Tao said.
Palm oil futures eased more than 100 ringgit earlier this week as Malaysia's July 1-15 palm oil exports tumbled more than 20 percent from a month ago with stronger production expected for the month. Market players will be watching closely for consumption trends as cargo surveyors Intertek Testing Services and Societe Generale de Surveillance issue export numbers for July 1-20 on Friday.
Palm oil plantation owners in Southeast Asia are also watching for the possibility of an El Nino weather pattern returning to the region at the end of the year, leading to dry weather that could hurt palm oil production. In other vegetable oil markets, the most active US soyoil for December delivery fell 0.6 percent by 1005 GMT and the most active January 2013 soyoil contract on the Dalian Commodity Exchange closed 0.4 percent higher.
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