10/12/2010 (Bloomberg) - Palm oil output in Malaysia, the second-largest producer, fell to the lowest level in five months as inventories dropped and exports increased.

Production declined 10.9 percent to 1,459,028 metric tons in November from 1,636,560 tons in October, the Malaysian Palm Oil Board said in a statement today. Inventories fell 8.7 percent to 1,636,669 tons from 1,793,092 tons, while exports rose 2.7 percent to 1,500,395 tons from 1,461,075 tons.

Palm oil futures climbed to 3,640 ringgit ($1,161) a ton yesterday, the highest level in 29 months, on concern that a seasonal drop in production and smaller soybean harvests in South America may strain cooking-oil supplies.

The decline in output and inventories “is in line with expectations of delay and disruption” in the harvest because of persistent bad weather, Anand James, chief analyst at brokerage Geojit Comtrade Ltd., said in an e-mail. An increase in the Indonesian export tax made Malaysian oil attractive, he said.

Heavy rains caused by La Nina have reduced oil-palm yields in Indonesia and Malaysia, the top producers. La Nina has also caused drought that curbed South American planting of soybeans, threatening global edible-oil supplies and driving prices higher.

February-delivery futures on the Malaysia Derivatives Exchange gained as much as 0.9 percent to 3,629 ringgit a ton today, reversing an earlier drop on the Malaysia Derivatives Exchange, and traded little changed at $3,600 ringgit.

Exports Increase
Exports from Malaysia fell 23.7 percent to 298,005 tons in the first 10 days of December from the same period a month earlier, independent market surveyor Intertek said today.

Palm oil is the world’s most-used plant oil, representing 33 percent of global vegetable-oil consumption, according to estimates from the U.S. Department of Agriculture. It’s followed by soybean and rapeseed oils, which make up 28 percent and 16 percent of use, respectively, the USDA says.

The drop in output is “quite significant and bullish from the market point of view,” Vijay Mehta, director of Commodity Links Pte Ltd. “There is a further scope for the market to go higher from this level.”