Malaysian palm oil jumps to near 3-year high as market expects sharper production drop

Malaysian palm oil futures rose to their highest in nearly three years on Thursday, buoyed by concerns after an industry body forecast a steeper-than-expected drop in production for the first 20 days of this month.

The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange jumped as much as 1.1% to 2,956 ringgit, its highest since Feb. 16, 2017, before trading 0.8% higher at 2,945 ringgit ($712.39) by 0247 GMT.

Palm prices have jumped 38% so far this year, heading for their best annual performance in nearly a decade.

Poor rainfall and lower fertiliser use in top producers Malaysia and Indonesia earlier this year are likely to curb yields of the tropical oil in the first half of 2020, according to traders and analysts.

"The Malaysian Palm Oil Association forecasts palm oil production in the first 20 days of December to fall 16% from the month before," said Anilkumar Bagani, research head of Sunvin Group, a Mumbai-based vegetable oil broker. The market had estimated a drop of 13%-15%, he added.

Exports of Malaysian palm oil products for Dec. 1-25 fell 12.8% to 1,035,930 tonnes from 1,187,970 tonnes shipped a month earlier, cargo surveyor Intertek Testing Services said.

However, domestic consumption is expected to increase as Malaysia, the world's second-largest producer of palm oil, plans to launch the B20 bio-diesel programme for the transport sector by February next year.

Indonesia, the world's top palm oil producer, on Monday launched bio-diesel containing 30% palm-based fuel, the highest mandatory mix in the world.

Dalian's most-active soyoil contract traded 0.5% higher, while its palm oil contract fell 0.9%. The Chicago Board of Trade was closed for Christmas.

Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.