Malaysian palm oil futures rose for a second day on Wednesday, reaching their highest level in 18 months, on concerns year-end monsoon rains and El Nino-related dryness may lower future output. The benchmark palm oil contract for March on the Bursa Malaysia Derivatives Exchange rose 0.4 percent to 2,495 ringgit ($581.86) a tonne at the end of the trading session. The contract hit an intra-day high of 2,504 ringgit, the most since June 25, 2014.
"There's some year-end covering going on, and people are expecting a decline in December production. People are expecting a decline by high single digit (percent)," said a trader at a brokerage based in Kuala Lumpur. Traded volume stood at 32,042 lots of 25 tonnes each on Wednesday. The year-end monsoon season impacts palm oil production across Southeast Asia annually, as seasonal rains and floods hinder the gathering of fresh fruit bunches, affect road networks and disrupt supply chains.
El Nino's dry weather pattern effect should also lower palm fruit yields and output next year, reducing stockpiles and supporting prices. Top producers Indonesia and Malaysia in October slashed their 2016 forecasts of palm output. Traders expect demand for the full month of December to fall, pending export data that will be released on Thursday. Cargo surveyors reported a 15-16 percent drop in shipments from December 1-25 compared with the same period a month ago.
Palm oil may rise into a range of 2,649-2,698 ringgit per tonne over the next three months, as indicated by its wave pattern and a Fibonacci ratio analysis, according to Reuters market analyst for commodities and energy technicals Wang Tao. In other vegetable oil markets, the US January soyoil contract is up 0.4 percent while the May soybean oil contract on the Dalian Commodity Exchange gained 1.8 percent.
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