Malaysian palm oil futures climbed 1.2 percent on Wednesday as traders looked to a developing La Nina weather pattern that could curb production of the tropical oil. La Nina-driven heavy rains at the end of the year could coincide with the monsoon season, stalling harvesting and supporting palm oil futures that have lost almost 22 percent so far this year.
"We are in a weather market for sure. The south-east Asian region has been getting more rains than usual and this will keep the palm oil market supported in the short term," said a trader with a foreign commodities brokerage. Benchmark January palm oil futures on the Bursa Malaysia Derivatives Exchange settled up 1.2 percent at 2,958 ringgit ($948) a tonne after going as high as 2,966 ringgit.
Overall traded volumes stood at 23,130 lots at 25 tonnes each, compared to the usual 25,000 lots. For now, production appears to be strong with traders expecting Malaysian palm oil stocks to record an increase despite the strong export data reported for October.
But La Nina rains will curb production and force refiners to run down stocks to meet regular orders. Indonesian government officials cancelled a meeting with their Malaysian counterparts this week to discuss a highly anticipated review on export taxes on crude palm oil, creating more uncertainty in the industry.
"It's most likely to take place at the end of November," said a Malaysian government official who declined to be named. "We hope there will be no further delay." Malaysia, the world's No 2 producer, says its refiners are suffering a price disadvantage after Jakarta slashed refined palm oil export duties and tariffs for the crude grade to keep more of the feedstock in Indonesia for processing.
Related markets were up. US soyoil for December delivery also reversed losses in Asian trade although global economic concerns and the rapid harvest of soybeans weighed. China's most active May 2012 soybean oil contract edged higher. "The soyoil market is more or less flat today. fundamentally there are not many influencing factors right now," said Zhang Ruming, research manager at Liangyun Futures.