Feb. 24 (Bloomberg) -- Palm oil output in Malaysia, the second-biggest grower, may climb this year as weather conditions that pushed prices to a three-year high improve, helping to boost yields, according to an industry group.

Output may be 17.6 million metric tons, compared with 17 million in 2010, Yusof Basiron, chief executive officer of the Malaysian Palm Oil Council, said in an interview yesterday. That would equal 2009’s production, data from the palm oil board show.

Increased supplies from Malaysia may help cool global food costs that reached a record in January according to the United Nations World Food Price Index. Palm oil has rallied 36 percent in the past year as floods hampered harvests in Indonesia and Malaysia, the top producers. Soybeans, crushed to make a rival oil, have jumped 39 percent in the period, tracking advances in wheat, corn, sugar and dairy products.

“Palm goes into almost every food product, and if palm and associate oils like soy become expensive it will impact food prices in various countries,” said Yusof, who has 32 years of experience in the industry. If Malaysia can produce and export more palm oil, it will help ease shortages in some countries and prevent food costs from rising, he said.

Production in January declined 14.2 percent from a month earlier to 1.06 million tons, the lowest level since February 2007, according to the Malaysian Palm Oil Board. Stockpiles shrank to 1.4 million tons, the smallest amount since July.

Full-year output reached an all-time high of 17.73 million tons in 2008, according to the board.

A La Nina weather event, which can bring drier-than-usual conditions to parts of Latin America, including the soybean- and corn-growing areas in Argentina and Brazil, and excessive rain to Southeast Asia, is showing signs of weakening, according to the Australian Bureau of Meteorology.

‘Plentiful Rain’

Palm oil reserves will be replenished by the second half of 2011 as yields improve, leading to a softening in prices, said Yusof. Crude palm oil may average 3,500 ringgit ($1,148) a ton this year, he said. Futures reached a 35-month high of 3,967 ringgit a ton on Feb. 10.

“Rain is plentiful, not enough to cause floods, but enough to induce growth and vigor in the production processes of oil palms,” Yusof said. “We could expect normalization of production back to what it should be from March.”

May-delivery futures slumped 4.2 percent to 3,514 ringgit in Kuala Lumpur yesterday, the most since Nov. 22.

Yusof joins ECM Libra Capital Sdn. in forecasting a drop in palm oil prices as the effects of the La Nina taper off.

“Most La Nina spikes are typically followed by a spike in production,” ECM analyst Bernard Ching said in a report on Feb. 22. Futures may average 2,700 ringgit in 2011, he said.

Palm oil may be close to peaking, Credit Suisse Group AG. said in a report Feb. 17. Prices, which may still touch 4,000 ringgit due to weather vagaries, may be unsustainable as they cause a slowdown in demand, the report said.