Malaysian palm oil futures briefly touched a five-week top on Wednesday on worries an El Nino weather pattern would curb yields, but expectations of weaker export demand in the second half of the month kept a lid on gains. In 2009, the El Nino brought the worst drought in four decades to India. It razed wheat fields in Australia and damaged huge swathes of rice, corn and palm crops across Southeast Asia. Forecasts by weather bureaus in Japan and Australia on Tuesday confirmed the return of the El Nino this year.
While very dry weather due to an El Nino can hurt ripening palm fruits, stress due to the dry spell in oil palm trees can typically only be seen nine to 12 months later. The benchmark July contract on the Bursa Malaysia Derivatives exchange rose to 2,233 ringgit a tonne in early trade, the highest since April 6.
But by the day's close, palm had dropped 1.3 percent to 2,197 ringgit ($610.87), the first drop in three days. Total traded volume stood at 45,171 lots of 25 tonnes each, above the average 35,000 lots. Traders are now waiting for indications on the strength of export demand for further cues.
While export data from cargo surveyors reported an up to 45 percent increase in shipments from Malaysia in the first ten days of the month from April, some traders say the surge could be due to buyers rushing to export palm before additional levies from top producer Indonesia kick in. In other markets, the US July soyoil contract rose 0.1 percent in early Asian trade. The most active September soybean oil contract on the Dalian Commodity Exchange fell 0.3 percent.