Palm oil inventories in Malaysia fell more than investors had expected to their lowest in 14 months, sapped by unexpectedly high exports, at a time when production is being undermined by yield stress.

Malaysia's stocks of the vegetable oil dropped for a fourth successive month, falling below 1.7m tonnes for the first time since April last year, the Malaysian Palm Oil Board said.

The figure, for June, reflected in part disappointing output growth heading towards what is, in September and October, the peak of the production cycle.

In part, this year's output slowdown reflects a hangover, in tree stress, from a bumper palm fruit harvest in 2010-11.

Imports slump

Meanwhile, exports from Malaysia, the world's second-biggest palm oil shipper, have consistently beaten expectations, topping 1.5m tonnes for the month, and exceeding investors' forecasts by 60,000 tonnes.

Malaysia's crude palm oil imports, essentially all from Indonesia, tumbled to less than 25,000 tonnes, down 72% year on year.

Futures dip

The data were, on the Kuala Lumpur futures market, overshadowed by a weak day for the soybean complex in Chicago, and by statistics from cargo surveyors showing a drop in Malaysia's palm exports so far this month.

The decline was pegged at 13.5% by Intertek Testing Services, and at 22.2% by Societe Generale de Surveillance.

Palm oil for September, the benchmark contract, closed down 0.7% at 3,130 ringgit a tonne.

Revival ahead?

However, Rabobank analysts maintained a bright outlook for palm oil futures, saying they would be underpinned by the prospect of weather damage not just to oilseed crops in drought-hit US, but also those in India, where the monsoon has continued to run short of average.

The deficit for the first nine days of July reached 25%, following a shortfall in June too, amid talk of an El Nino, which is often linked to weak monsoon rains.

"The main soybean-growing region in Central India is currently experiencing a 50% moisture deficit, with the rapeseed region in the north west of the country experiencing nearly a 70% deficit," Rabobank said.

The last season of weak monsoon, in 2009-10, saw Indian vegetable oil imports rise to a record 7.7m tonnes.

"In that particular instance, a large share of the country's deficit was met with soyoil imports.

"However, given the current global soybean deficit we expect India will be left to rely more heavily on palm oil imports," the bank said, foreseeing "further upside" to palm oil prices "as the fundamental outlook across the entire oilseeds complex becomes increasingly bullish".