Palm oil fell to the lowest level this year after stockpiles of the commodity in Malaysia, the second-biggest producer, declined less than predicted by some investors.

The March-delivery contract dropped 0.9 percent to 3,730 ringgit ($1,210) a metric ton, the lowest since Dec. 24, erasing gains of as much as 1.2 percent. Prices reached a 34-month high on Jan. 4 on concerns that inventory in Malaysia may have fallen in December to a five-month low after rain disrupted harvests.

Stockpiles fell 1.3 percent in December to 1.61 million tons from a month earlier, the Malaysian Palm Oil board said today. Palm oil jumped 42 percent last year, a second year of gains, on concern that cooking-oil supplies may tighten as dry weather in Argentina weakened soybean crops and rains damaged oil-palm harvests in Indonesia and Malaysia.

“The decline in stockpiles wasn’t as steep as expected by some people and that may have triggered selling,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. “Governments around the globe are increasingly concerned about rising food inflation and that may prompt them to take measures to cool prices.”

Output dropped 15.5 percent to 1.23 million tons, the lowest in 10 months, while exports fell 14.6 percent to 1.29 million tons, the board said in an e-mailed statement.

“Production will be even worse in January and February because of the weather,” said Ben Santoso, analyst with DBS Vickers Securities (Singapore) Pte. “Inventory is going to go down further and prices will stay strong until early March.”

Exports from Malaysia rose 0.8 percent to 300,250 tons in the first 10 days of January from a month earlier, independent market surveyor Intertek said today. Shipments increased 5.7 percent to 331,655 tons, Societe Generale de Surveillance said

USDA Estimate

Palm oil gained in intraday trading after prices of rival soybean oil increased on speculation that the U.S. government may cut the global soybean oilseed output estimate because of dry weather in Latin America.

Global inventories of soybeans will drop to 58.78 million tons at the end of this season, from 60.4 million tons a year ago, according to a Bloomberg News survey. That compares with the U.S. Department of Agriculture’s estimate last month of 60.1 million tons. The USDA will release its next estimate Jan. 12.

“Soybean oil is firm as there’s an expectation that the USDA will lower its estimate on bad weather in Argentina and Brazil,” said Veeresh Hiremath, associate chief analyst at Karvy Comtrade Ltd.

March-delivery soybean oil advanced as much as 1 percent to 57.37 cents a pound, and was at 57.02 cents at 3:30 p.m. Mumbai time. Futures advanced 13 percent last month.

China, the top cooking oil importer, bought 5.43 million tons of soybeans in December, the customs said today. Vegetable oil imports were 790,000 tons last month, it said.

Palm oil for September delivery on the Dalian Commodity Exchange shed 0.4 percent to 9,814 yuan ($1,479) a ton and soybean oil for delivery in the same month fell 0.4 percent to 10,546 yuan a ton.

CME Group Inc.’s March palm oil contract, pegged to the Malaysian benchmark price, fell as much as 1.3 percent to $1,214.75 a ton and traded at that price at 3:31 p.m. in Mumbai.