Malaysian palm oil futures reversed gains made in the previous session, pushed lower by expectations of rising output that would contribute towards greater stockpiles at end-July. Benchmark palm oil futures for October delivery on the Bursa Malaysia Derivatives Exchange fell 0.8 percent to 2,300 ringgit ($568) per tonne at the close of trade, the first decline after two sessions of gains. Traded volumes stood at 35,537 lots of 25 tonnes each in the evening, versus the 2015 average of 44,600.
"The market still lacks direction, but people think production may be picking up," said a Kuala Lumpur-based trader. "Output in East Malaysia is up for the month of July." Production of the tropical oil in Malaysia, the world's second largest producer, is forecast to rise in line with seasonal trends in coming months.
Output rose 12.3 percent to 1.53 million tonnes at end-June from 1.36 million tonnes the previous month, while end-stocks grew 7.8 percent to 1.78 million tonnes. Yields that were earlier affected by dry weather brought by an El Nino weather event are also seen recovering towards the year end, as recent rains and a potential La Nina help production.
El Nino brings scorching heat across Southeast Asia, impacting palm output. A La Nina event causes heavy rainfalls in the region, nourishing fruit yields and improving production. La Nina is likely to develop during August through October this year, a US government weather forecaster said. Palm oil may break a support at 2,302 ringgit per tonne and drop more towards the next support at 2,258 ringgit, according to Wang Tao, a Reuters market analyst for commodities and energy technicals. In competing vegetable oils, the Chicago soyabean oil contract for December was down 0.4 percent, while Dalian's January soyabean oil contract fell 0.5 percent.