Palm Oil Futures Ease as Supply Fears Meet El Niño Risk

Palm oil futures are consolidating lower after a two‑week slide, with the MDEX forward curve edging down about 0.4–0.6% across 2026–27 while Bursa Malaysia contracts retreat from recent highs. Rising production and expectations of record or near‑record Malaysian inventories are weighing on prices, but downside is cushioned by tightening Indonesian export availability and growing concern over a potentially strong El Niño. Benchmark Malaysian palm oil futures ended last week near a three‑week low as traders priced in higher output and swelling stocks, even as competing oils and energy markets turned more neutral. At the same time, policy‑driven demand from Indonesia’s biodiesel mandate and early warnings about a possible “super El Niño” are preventing a steeper correction. The market is caught between improving near‑term supply and rising medium‑term weather risk, leaving prices range‑bound but volatile as participants await the next MPOB data.

Prices

The MDEX palm oil forward curve on 3 July 2026 showed a broad, shallow decline, with active 2026–27 contracts down around MYR 20–27 per tonne on the day (about −0.4% to −0.6%). Near‑by September 2026 closed at MYR 4,480 per tonne, while outer months through mid‑2027 traded slightly higher but showed the same incremental daily losses.

On Bursa Malaysia Derivatives, the benchmark September 2026 CPO contract has also softened, recently trading around MYR 4,480–4,550 per tonne after shedding roughly 0.2–0.5% in the latest sessions as the market waits for fresh MPOB supply data. This places prices toward the lower half of the Malaysian Palm Oil Council’s indicated July range of MYR 4,400–4,650 per tonne. Overall, the structure remains mildly backwardated versus the loftier levels seen in June.

*EUR estimates assume ~MYR 5.2 = EUR 1 for orientation.

Supply & Demand

Traders increasingly expect Malaysian palm oil stocks to climb as higher seasonal production outpaces demand. A recent market survey points to June inventories potentially reaching the highest level ever recorded for that month, driven by a clear month‑on‑month rebound in output. Earlier MPOB data already showed end‑May stocks up more than 20% year‑on‑year, underlining the shift from tightness toward relative comfort.

At the same time, export availability from Indonesia is set to tighten as the industry moves toward a 50% biodiesel blending mandate, absorbing additional domestic feedstock and limiting shipments to the world market. This structural demand support is helping to offset the bearish impact of Malaysian stocks. Moreover, high premiums for US soyoil since March 2026 have dented its export competitiveness, leaving palm oil comparatively attractive in key import markets.

Fundamentals & Weather

Fundamentals are currently sending mixed signals. On one side, Malaysian production is entering the seasonally stronger second half of the year, and recent analysis highlights both weak exports and elevated domestic inventories. On the other, industry guidance still expects CPO prices to hold in a relatively firm July range, supported by biodiesel demand, inter‑oil spreads and the possibility that stocks start to draw if demand improves.

Weather risk is shifting to the foreground. Forecasts and regional agencies now warn that El Niño conditions are emerging, with a high probability of intensification into late 2026 and a non‑negligible chance of a very strong event. Indonesia has already cautioned farmers, including those in oil palm regions, to prepare for El Niño‑driven dry weather. For now, rainfall in many Southeast Asian plantation belts remains near seasonal norms, but markets are starting to price in the risk of yield losses and lower 2027 output if dryness persists.

Short‑Term Outlook & Strategy

In the near term, the balance of evidence points to a sideways‑to‑slightly‑softer price path as higher Malaysian output and still‑ample stocks counter policy‑driven demand and weather risk. With futures already easing from June highs yet still supported by structural biodiesel use, the market looks more likely to trade within a broad range rather than embark on a deep sell‑off.

Trading Outlook (next 1–4 weeks)

• Producers/plantations: Consider layering in hedges on 2026–early‑2027 sales near the upper half of the MYR 4,400–4,650 per tonne range (≈ EUR 860–910/t), using options where possible to retain upside in case El Niño tightens supply later.
• Importers/refiners: Use current dips toward the lower end of this range to secure nearby coverage, but avoid over‑buying until the next MPOB report clarifies how quickly Malaysian stocks are building or peaking.
• Speculators: The risk‑reward currently favors range‑trading strategies, with short‑term shorts around recent resistance and quick profit‑taking on breaks lower, given the asymmetric upside risk from weather and Indonesian policy.

3‑Day Directional View

• Bursa Malaysia CPO (benchmark nearby, MYR): Mild downside bias but largely range‑bound, with trade likely contained within roughly MYR 4,400–4,550 per tonne (≈ EUR 850–875/t) as participants await fresh stock data and monitor weather headlines.
• MDEX forward strip (EUR‑equivalent): Slightly softer tone across 2026–27 contracts, with prices hovering around EUR 850–885/t and only limited follow‑through expected without a decisive signal from MPOB or a clear shift in El Niño forecasts.