Palm oil futures topped 2,900 ringgit a tonne for the first time in nearly 18 months after Malaysia revealed a tumble in production of the vegetable oil, spurring output concerns also being raised by fears for an El Nino.
Palm oil for May settled up 0.5% at 2,901 ringgit a tonne in Kuala Lumpur, the highest close since September 2012.
The rise followed the release by the Malaysian Palm Oil Board of data showing that Malaysian stocks of the vegetable oil fell 14.3% month on month in February to 1.66m tonnes, the lowest since June.
The decline was fuelled by a 15.3% slump to 1.28m tonnes in production, which put output in the second-largest producing country well behind Malaysian exports of 1.35m tonnes, besides domestic consumption on top.
The drop in output was also bigger than expected by investors, who had braced for a large drop in output as dryness in Malaysia and Indonesia, the top palm oil producer, exacerbates a seasonal decline.
"Palm oil production is being hit by the exceptionally dry weather in some parts of Indonesia and Malaysia," Edward Hugo at broker VSA Capital said, adding that if the sparse rainfall continues, "yields will continue to be hit for up to 18 months".
Concerns are being spurred by the growing possibility that meteorologists are giving to the threat of an El Nino weather pattern.
"The last strong El Niño in 1997 resulted in a 17% fall in Malaysian palm oil yields the following year," Mr Hugo said.
"A similar situation for 2014-15 would have serious ramifications for global palm oil supply."
On Monday, Japan's weather bureau raised above 50% its estimate of the chance of an El Nino, linked to warmer sea-surface water temperatures in the Pacific, developing this summer.
The El Nino predictive model predicts the sea temperatures in the ocean area monitored for El Nino will transition from a level near standard this spring to a higher-than-standard level this summer," the Japan Meteorological Agency said.
El Ninos are linked to weather outcomes such as dry weather in eastern Australia and South East Asia, and in West Africa, hurting cocoa production.
However, not all its outcomes are seen as negative for agricultural production, with the weather pattern tending to bring cooler US summers deemed supportive for corn yields.
For US soybeans, broker Jefferies Bache said that "while sometimes the idea of an El Niño can cause concerns" about crops, data for years with an El Nino developing during the April-June through July-September period showed "good" yields.