Palm oil advanced for a third day on concern that Argentina’s soybean output may slide, paring global supplies of the rival edible oil and potentially boosting demand for the tropical commodity.

The March-delivery contract gained 1.7 percent to close at 3,620 ringgit ($1,158) a metric ton on the Malaysia Derivatives Exchange. The price reached 3,766 ringgit a ton on Dec. 14, the highest level in 33 months.

The soybean harvest in Argentina, the third-biggest shipper, may fall 21 percent next year as drought delays planting and hurts growing conditions, researcher Oil World said yesterday. Palm oil competes with soybean oil for use in foods and fuels.

“This could be supportive news for palm oil,” Ker Chung Yang, an analyst with Phillip Futures Pte, said from Singapore today. “With a reduction in soybean production, we expect to see palm oil” demand picking up, said Ker.

Palm oil has surged 36 percent this year, heading for a second annual advance, on speculation that rising demand from China and India, the largest users, may strain global supplies curbed by rain and drought.

Soybeans have risen 30 percent this year amid concern the South American harvest will drop, and as China’s imports climb. Overall soybean production in five South American growers may decline 8 million to 10 million tons, according to Oil World.

‘High Risk’

There is a “high risk” the Argentine crop will drop to between 43 million to 48 million tons in 2011, from 54.4 million in 2010, the Hamburg-based Oil World said in a weekly report.

A La Nina weather event has brought wet weather to Southeast Asia and drought to parts of South America, curbing the planting of soybeans. Heavier-than-usual rain has hurt palm oil yields and disrupted harvesting in Indonesia and Malaysia, the two-largest producers.

The event may be near its peak, Australia’s Melbourne-based Bureau of Meteorology said in a report on its website today. There may be a weakening from the end of the first quarter of 2011, climatologist Skie Tobin said by phone from the center.

Palm oil prices are also being supported today by rising crude oil, analyst Ker said. “Soybean oil, crude palm oil and crude oil have a high correlation,” he said.

Crude rose for a fourth day to trade at $90.29 a barrel on the New York Mercantile Exchange, near the highest level in two years, as signs of U.S. economic recovery stoked expectations that fuel demand will increase.

The price of palm oil will “remain high” next year on stronger soybeans, rising Chinese oilseed demand and increased biofuels production, Rabobank Groep NV said in a note yesterday.

‘Main Driver’

“China will be the main driver for palm,” the report said. Ending stockpiles for 2010-2011 are forecast at the lowest since 2004-2005 as global consumption reaches a record, the bank said.

March-delivery soybean oil on the Chicago Board of Trade gained as much as 0.8 percent to 56.53 cents a pound.

Palm oil for September on the Dalian Commodity Exchange closed 0.2 percent lower at 9,444 yuan ($1,419) a ton. Soybean oil fell 0.1 percent to 10,164 yuan a ton at the close.

CME Group Inc.’s March palm-oil gained 0.3 percent to $1,150.50 a ton at 4:11 p.m. in Singapore.

http://www.bloomberg.com/news/2010-12-22/palm-oil-advances-for-a-third-d...