Nov. 10 (Bloomberg) -- Palm oil fell, reversing an advance to its highest level in more than two months, after stockpiles in Malaysia, the world’s second-largest producer, increased to a 10-month high as output surged to a record.

Inventories of the edible oil, used mostly in cooking, surged 25 percent to 1.97 million metric tons in October from a month earlier, the Malaysian Palm Oil Board said today. Output reached a record 1.99 million tons, while exports gained 12 percent to 1.48 million tons, it said.

“The fundamentals have been upside down,” said Donny Khor, senior vice president for futures & options at OSK Investment Bank Bhd., said by phone from Kuala Lumpur. The stockpiles in Malaysia are “bigger than expected,” said Khor, who had forecast the reserves at 1.8 million tons to 1.85 million tons.

January-delivery palm oil ended 1.1 percent lower at 2,242 ringgit ($663) a ton on the Malaysia Derivatives Exchange. The price climbed to 2,285 ringgit a ton in intraday trading, the highest level since Sept. 1.

Futures may gain as buyers return to the market to meet demand for the festive season in the coming months, Khor said.

“Supply worries, a pickup in demand due to the Chinese New Year festivities, global economic recovery, a smaller domestic oilseed crop from India” and increased mandates for biofuel may push prices higher through the first quarter, Ivy Ng, an analyst at CIMB Investment Bank Bhd., said in a report today.

Malaysia’s palm oil exports tracked by Societe Generale de Surveillance jumped 22 percent to 421,311 tons in the first 10 days of November compared with the same period in the previous month. Shipments tracked by Intertek climbed to 403,302 tons from 339,195 tons, the independent market surveyor said today.

El Nino

Futures may increase to 2,400 ringgit a ton by the first quarter as demand from India and China, the biggest consumers, recovers and El Nino may hurt output next year, according to Dorab Mistry, director of Godrej International Ltd.

Global palm oil production, including output from Indonesia and Malaysia, will expand 6.2 percent to 46.5 million tons next year, compared with a four-year average growth rate of 8.4 percent, Ng said, citing estimates from Oil World, a global oilseed information provider.

El Nino, which can parch crops in Asia and cause flooding in South America, may increase palm oil supply worries, Ng said.

“The current El Nino has so far brought a weaker monsoon to India and sub-par rainfall in Indonesia and Malaysia in July- to August,” Ng said. “The weather forecasters indicate that the most likely outcome for El Nino is to peak with at least moderate strength.”

Fry Forecast

Palm oil may reach 2,375 ringgit a ton by April, industry consultant LMC International said today, paring its price forecast after the jump in inventories. The increase “is incredible,” Managing Director James Fry said at a conference in Kuala Lumpur today. Fry yesterday forecast palm oil may reach 2,625 ringgit by April.

Crude oil was little changed at $79.34 a barrel and soybean oil slipped 0.8 percent to 37.89 cents per pound.

Indonesia accepted bids for half of the 24,000 tons of the tropical commodity offered in auctions today. The Joint Marketing Office, which sells the palm oil from state plantations, sold 11,000 tons of the 14,000 tons tendered in Jakarta today. PT Astra Agro Lestari, the nation’s largest publicly traded plantation company, accepted bids for 1,000 tons out of 10,000 tons of palm oil products offered.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

Last Updated: November 10, 2009 06:58 EST