S.American soy crop weather lifts palm to 5-week high

KUALA LUMPUR (Dec 28): Malaysian crude palm oil futures climbed to a
near five-week high on Wednesday as dry weather in South America sparked
concerns about lower soybean yields, potentially tightening soyoil
supplies.

Despite the rise, prices of the tropical oil are still
on course for their first annual decline since 2008 on worries the euro
zone debt crisis could stall economic growth and commodity demand.

"In the short term, the euro zone debt crisis will fade from palm oil
traders' focus," said a trader with a foreign commodities brokerage in
Kuala Lumpur.

"Many are tracking the potential weather
disruptions to soybean crops in south America and oil palm fruit
harvesting in southeast Asia. The Iranian problem boosting crude oil is
adding some shine to palm oil too."

Benchmark March palm oil
futures on the Bursa Malaysia Derivatives Exchange settled up 0.8
percent at 3,185 ringgit ($1,000) after going as high as 3,205 ringgit
-- a level unseen since Nov. 22.

Traded volumes for palm oil
futures were surprisingly strong ahead of the new year holidays with
27,216 lots of 25 tonnes each, compared to the usual 25,000 lots.

Traders said market players were likely squaring off their books ahead
of time. Dealers were also eyeing weather developments in Malaysia, the
No.2 producer of the vegetable oil where regularly issued data may show
signs of heavy rains affecting production.

So far, planters have
reported some disruption in deliveries of crude palm oil to refineries
and ports in southern Johor state that accounts for at least 20 percent
of national output.

"Production in Johor is down but it is
really not so bad in other parts of Malaysia such as Sabah. I would not
be too surprised, once you balance the numbers, if we get a tiny gain in
output this month," said another trader in Kuala Lumpur.

Palm
oil production in Malaysia is now in the seasonally low yield phase and
many planters and traders expect stock levels to come down although the
pace of the decline depends on the export trend.

Exports have
moderated after exceptionally strong growth in July and August,
potentially easing any tightness in stocks. Cargo surveyors reported
more than an 11 percent drop in Malaysian exports in Dec. 1-25 from a
month ago as China and India slow shipments for the year end.


Brent crude edged down on Wednesday after rallying for six straight
sessions, but prices continued to hover near $109 per barrel supported
by Iran's threat to halt oil shipments through the Strait of Hormuz and
positive U.S. data.

U.S. soyoil for January delivery fell 0.4
percent in Asian trade after posting strong gains in the previous
session. The most active Sept 2012 soyoil contract on China's Dalian
commodity exchange rose nearly 1 percent.

"The focus is still on
South America's weather and La Nina, but this is not exactly a big
problem as China has enough stocks of soybean oil. The probability of a
serious supply disruption is not big," said Zhang Juan Cong, an oil
analyst with Dadi Futures in Hangzhou.- Reuters