Malaysian palm oil futures eased from a 27-month high on Tuesday on some profit-taking although concerns over a strong monsoon season hitting yields lingered. A weaker US dollar against a basket of currencies limited losses in palm oil that is priced in the greenback, making the commodity cheaper. Higher US crude oil also lent support for palm oil and other vegetable oil prices.
Malaysian palm oil prices are starting to pick up, gaining 16 percent so far this year compared with US soyaoil's 23 percent rise and China's soyaoil 19 percent gain because of a weaker dollar and, now, weather concerns. January 2011 crude palm oil futures on the Bursa Malaysia Derivatives Exchange rose as much as 1 percent to 3,106 Malaysian ringgit ($1,004) per tonne - a level unseen since July 28, 2008.
But the contract gave up gains to settle 2 ringgit lower at 3,090 ringgit per tonne. Overall traded volume stood at 12,719 lots of 25 tonnes. "There was some profit-taking as the market has gone up fast but fundamentals of heavier rain possibly hitting production and strong overseas markets are intact," said a trader with a foreign commodities brokerage.
The trader was referring to the abnormal weather condition that likely more rains to Southeast Asia just as the monsoon season starts. Prolonged exposure to rains increases the moisture content in palm fruits, and that may force planters to sell to refiners at a discount.
Oil rose on Tuesday ahead of an expected decision by the Federal Reserve to pump more money into the US economy and after an apparent upward shift in price tolerance among oil producing countries. In Asian trade hours, US soyaoil for December delivery was flat but supported by a weaker US dollar, prospects of continued strong demand from China for soybeans and higher crude oil. The most active September 2011 soyaoil on China's Dalian Commodity Exchange edged 0.2 percent higher.