(OCT 23): Palm oil — the world’s most widely used vegetable oil — rallied to the highest level in more than two years as supply woes persist, rekindling concerns about rising consumer food costs.

Futures surged as much as 2.6% in Kuala Lumpur on Wednesday to RM4,500 a metric ton, the highest since July 2022. That extends this year’s rally to more than 20% amid tight supplies in the biggest growers and strong demand for some other edible oils.

The tropical commodity is found in everything from cookies and ice cream to shampoo and animal feed. While its price remains far from a record, palm’s advance adds to a recent uptick across global food staples that could eventually flow through to higher grocery bills.

A United Nations index of key agricultural commodities last month jumped 3%, the most since the onset of Russia’s invasion of Ukraine.

The rally has been gathering pace as Indonesian and Malaysian palm plantations, which account for the bulk global supply, struggle with production. Smallholders are reluctant to cut aging trees and replant as it can take several years for new ones to bear fruit. The gain has also spurred palm to command a rare premium to soybean oil, its main alternative.

Top producer Indonesia’s palm oil output may only reach 51 million metric tons this year — down from 54.8 million metric tons in 2023 — due to lingering impacts from the El Niño weather phenomenon, according to the Indonesian Palm Oil Association.

Recent gains in crude oil prices have also boosted the appeal of palm as a biofuel. Tensions in the Middle East have raised the spectre of supply disruptions in a region that accounts for about a third of world output.

Still, demand is likely to dim in the coming winter months in the Northern Hemisphere, which could curb the rally, said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. The tropical oil tends to solidify in colder temperatures, prompting buyers to turn to alternatives.