KUALA LUMPUR, August 22 — Palm oil tumbled below RM2,000 a metric tonne for the first time in more than five years as forecasts for a record US harvest of soybeans used to produce an alternative oil threaten to curb demand.

Futures dropped as much as 2.5 per cent to RM1,989 on the Bursa Malaysia Derivatives, the lowest level since March 2009, and closed at RM2,000 in Kuala Lumpur. Prices are down 25 per cent this year, heading for the third annual decline in four years.

Palm entered a bear market last month as favourable weather boosted the outlook for US soybean crops, estimated to be the largest ever. Futures also slumped as demand for biofuels missed expectations and forecasts for an El Nino weather, which can disrupt supplies, were scaled back. The Department of Agriculture may raise its soybean output estimate next month, said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore.

“This is probably the biggest supply that we have seen for US soybeans and this is weighing on other oilseeds and palm is indirectly affected by this,” said Alvin Tai, an analyst at RHB Investment Bank Bhd. in Kuala Lumpur. “The weakness probably won’t last beyond September. We have peak production coming up in September, so after that production will start to taper off,” he said, referring to palm oil.

Production in Malaysia may reach a record 19.7 million tonnes to 19.9 million tonnes, while Indonesia’s output may total an all- time high of 30.5 million tonnes or more this year, according to Dorab Mistry, director at Godrej International Ltd. The two Southeast Asian producers together account for 86 per cent of world supplies.

USDA estimate

US farmers will harvest a record 3.816 billion bushels this year, compared with 3.8 billion estimated in July, USDA said August 12. World inventories before the start of the 2015 Northern Hemisphere harvests will rise 28 per cent to a record 85.62 million tonnes, the agency estimates.

“The last USDA report was a bit conservative, the estimates could be higher in September,” said Gnanasekar. “The USDA was probably worried about possible weather hindering the crop estimates in August.”

Palm oil may drop to RM1,700 in the coming months if the USDA raises soybean estimates, said Gnanasekar.

Soybean oil traded at 33.02 cents a pound on the Chicago Board of Trade, after touching 32.76 cents on August 20, the lowest level since September 2009. Soybeans slumped to US$10.35 (RM32.71) a bushel on August 20, the lowest since September 2010. Palm’s discount to soybean oil shrunk to about US$95.69 a tonne today from an average of US$244 in 2013, data compiled by Bloomberg show. — Bloomberg