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Palm off 17-month top but weather worries remain

Palm oil fruits are seen placed on a wheelbarrow at a palm oil farm in Klang, outside Kuala Lumpur, February 19, 2014. – Reuters pic, March 6, 2014.Palm oil fruits are seen placed on a wheelbarrow at a palm oil farm in Klang, outside Kuala Lumpur, February 19, 2014. – Reuters pic, March 6, 2014.Malaysian palm oil futures slipped today, taking a breather after prices rallied to a 17-month top in the prior session on unfavourable crop weather in Southeast Asia.

The next three weeks will be crucial for palm oil output, traders and analysts at a key industry conference in Kuala Lumpur said. If dryness continues to plague oil palm plantations in top producers Indonesia and Malaysia, it would reduce yields of fresh fruit bunches and drive up prices.

"There's a lot of uncertainty about the weather. The market is waiting for the next seven days to see how the weather turns out," a trader with a foreign commodities brokerage said.

"If the hot and dry weather persists, then palm will be in trouble and prices will go up much further," the Kuala Lumpur-based trader added. "Now prices are in a range between RM2,800–RM2,900."

By the midday break, the benchmark May contract on the Bursa Malaysia Derivatives Exchange had edged down 0.4% to RM2,823 ($866) per tonne, with prices trading in a range between RM2,808–RM2,835.

Benchmark prices, which hit a high of RM2,868 ringgit yesterday, are on track for a fifth straight week of gains.

Total traded volume stood at 13,941 lots of 25 tonnes, slightly above the average 12,500 lots.

Technicals show that Malaysian palm oil prices could peak around a resistance at RM2,883 per tonne, Reuters market analyst Wang Tao said.

Fears of a prolonged dry spell tightening palm supplies have boosted prices by 6.2% so far this year, although some market players said the recent rally could be a little overdone.

Analysts said at such high prices, demand for the tropical oil could dwindle as buyers switch to rival edible oils of which there is ample supply, such as sunflower, soy and canola oils.

In other markets, Brent crude held steady just below $108 a barrel, as investors looked for direction after a heavy sell-off in the previous two sessions prompted by easing geopolitical risk over the crisis in Ukraine and US data suggesting weaker oil demand.

In other competing vegetable oil markets, the US soyoil contract for May lost 0.4% in early Asian trade, while the most active May soybean oil contract on the Dalian Commodities Exchange was nearly flat. – Reuters, March 6, 2014.

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