SINGAPORE, Aug 13: Malaysian crude palm oil futures tumbled to a near 10-month low on Monday, mirroring losses in grains and oilseed markets where traders booked profits from a US drought-driven rally and as rising local stocks weighed on sentiment.

The monthly supply and demand report by the US Department of Agriculture (USDA) forecast a lower soybean output on late Friday, which is slightly bullish for palm oil, but traders said the downgrade had been factored in.

The market continued to price in improving production and a lacklustre demand that pushed Malaysia's palm oil inventory level to a five-month high of nearly two million tons in July.

“Global vegetable oils are better supplied than global oilseeds and we therefore expect prices to underperform. The price discount of Bursa palm oil to CBOT soyoil averaged a large $223 a ton in July and did not spark strong export demand,” Rabobank analysts said in a note to clients.

“As a result, we expect this spread to continue to move wider as bullish sentiment remains in CBOT prices with the worst drought in more 50 years continuing to hamper U.S. soybean production,” they added.

The benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange dropped nearly 2 per cent to 2,825 Malaysian ringtgit -- a level unseen since Oct 20. last year.

The contract later settled down 0.4 per cent to 2,871 ringgit.

Palm oil ended the previous week with a 1.2 per cent loss, the fifth consecutive week that the edible oil is in the red.

Total traded volumes stood at 29,649 lots of 25 tons each, just slightly lower than the usual 30,000 lots.On the technicals front, palm oil will retest a support at 2,838 ringgt, a break below which will trigger a fall to 2,760 ringgit, Reuters market analyst Wang Tao said. —Reuters