Palm oil dropped the most in three weeks after it became more expensive than soybean oil for the first time in more than three years, increasing the appeal of the rival oil for use in food and fuels. March-delivery futures fell as much as 2 percent to 3,810 ringgit ($1,242) a metric ton, the most since Dec. 17, and ended the morning session at 3,844 ringgit on the Malaysia Derivatives Exchange. The contract reached a 34-month high yesterday on speculation inventory in Malaysia, the second-biggest producer, may have dropped to a five-month low in December. Soybean oil traded at a discount of $14.30 a ton to palm oil yesterday, the first time since June 2007 that the oil has been cheaper than the tropical commodity. Soybean oil traded at a premium of $2 a ton today, compared with a 12-month average of $85.30, according to data on the Bloomberg. “There will be an incentive for buyers to look at soybean oil as it’s trading at only a marginal premium to palm oil,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. Palm oil futures have surged 68 percent in the past six months on concern that cooking-oil supplies may tighten as dry weather in Argentina hurt the crop in the largest soybean-oil producer and rains affected oil-palm harvests in Indonesia and Malaysia. Vegetable-oil reserves are forecast to decline to a seven-year low at the end of this season, according to the Economic Research Service of the U.S. Department of Agriculture. Oilseeds have climbed since July on “unsustainably high” consumption, and prices may gain more in the next three months, especially if the outlook for the soybean crop in Argentina continues to drop, according to industry researcher Oil World. ‘Major Variable’ “Supply shortage of oilseeds and primarily of oils and fats is likely to last well into 2011,” Oil World said. “The extent of crop losses in Argentina is currently a major variable to watch.” Palm oil output in Malaysia fell to the lowest in five months in November and stockpiles shrank for the first time in four months, the nation’s palm oil board said Dec. 10. Futures may cross 4,000 ringgit in the next one month supported by lower output and rising demand, ECM Libra’s Tan said yesterday. Prices may average 2,800 ringgit, she said. March-delivery soybean oil fell as much as 0.5 percent to 56.55 cents a pound, and traded at 56.97 cents at 11:59 a.m. in Singapore. The oilseed declined 1.5 percent yesterday as corn, soybeans and gold dropped on bets that a global rebound in the economy will bolster the dollar and equities. Palm oil for September delivery on the Dalian Commodity Exchange declined as much as 1.7 percent to 9,754 yuan ($1,473) a ton and soybean oil for delivery in the same month shed as much as 1.4 percent to 10,462 yuan a ton. To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net; To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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