Palm Oil Futures Ease but El Niño and Biodiesel Policy Keep Floor Under Prices

Palm oil futures on the Malaysian derivatives exchange slipped modestly, but the forward curve remains firm as looming El Niño risks and stronger biodiesel demand limit downside. Benchmark contracts from August 2026 to May 2027 eased by roughly 0.3–0.4% on July 17, 2026, consolidating after recent gains. Despite the pullback, prices are still trading in the upper part of their recent band, supported by expectations of tighter 2026/27 supplies in Malaysia and Indonesia and improving export demand.

Prices

On July 17, 2026, MDEX crude palm oil futures closed lower across the nearby strip. August 2026 settled at MYR 4,517/t (≈EUR 903/t), September 2026 at MYR 4,559/t (≈EUR 912/t) and October 2026 at MYR 4,590/t (≈EUR 918/t), each down around 0.3–0.4% versus the previous day. Further-out contracts into early 2027 show a gentle contango, with January 2027 at MYR 4,687/t (≈EUR 937/t) and March 2027 at MYR 4,714/t (≈EUR 943/t), indicating expectations of slightly higher forward values but no aggressive risk premium yet.

Recent external price indicators confirm a consolidation phase: international palm oil benchmarks edged higher earlier in the week on stronger mid‑July export estimates and a higher Malaysian reference price, but nearby MDEX contracts are now giving back part of those gains as traders reassess short‑term demand strength and rising regional stocks.

Supply & Demand

On the supply side, Malaysia and Indonesia still report relatively comfortable inventories after strong production in the first half of 2026 and a brief soft patch in exports. Malaysian end‑July stocks recently surprised to the upside, signalling a robust start to the seasonal uptrend in output from July to December. At the same time, Indonesia’s May production dipped on a monthly basis but cumulative year‑to‑date output remains above last year, while national stocks rose above 3 million tonnes, pointing to a still‑well supplied market for now.

Forward‑looking fundamentals are tightening, however. The USDA has revised Malaysia’s 2026/27 production down to about 19.7 million tonnes, citing El Niño‑linked dryness risks and only marginal expansion in planted area. Historical strong El Niño events have cut palm yields in both Malaysia and Indonesia, and current forecasts suggest a similar pattern of moisture stress into 2027. In parallel, Indonesia’s move towards a B50 biodiesel mandate from mid‑2026 is expected to absorb additional volumes, structurally tightening export availability and supporting prices.

Fundamentals & Weather

The slight contango from nearby to early‑2027 MDEX contracts reflects two opposing forces: near‑term stocks that are adequate to heavy versus rising concerns about future supply losses. Analysts now expect global palm oil supply growth in 2026/27 to slow markedly, and under a strong El Niño scenario, total output could even contract versus trend, implying a multi‑million‑tonne swing in the balance compared with a normal year.

Weather models indicate increasing odds of persistent El Niño‑type dry conditions in key producing regions of Indonesia and Peninsular Malaysia through late 2026 and into 2027. While plantations are still receiving some rainfall and improved agronomic practices may cushion yields, prolonged moisture deficits would likely show up in lower fresh fruit bunches from mid‑2027 onward. This lagged production impact, together with firm biodiesel and food demand, underpins research house expectations for average crude palm oil prices around or slightly above MYR 4,450/t (≈EUR 890/t) in 2026 and only a modest easing in 2027.

Trading Outlook

• Producers / Sellers: Use current price dips towards the low EUR 900s/t on nearby MDEX contracts to advance hedge coverage for 2026/27, especially for volumes exposed to potential El Niño yield losses. Retain some upside participation (e.g. via call options) given the risk of weather‑driven price spikes next year.
• Importers / Consumers: Consider layering in coverage on pullbacks rather than waiting for a deeper correction, as the forward curve and fundamentals suggest limited downside below roughly EUR 850–880/t without a clear improvement in weather or a demand shock.
• Traders / Speculators: The slight contango and mixed short‑term signals argue for a tactical, range‑trading approach in the coming weeks, with a structural bias to buy medium‑term dips on confirmation of persistent El Niño conditions or stronger biodiesel offtake.

3‑Day Directional Outlook (EUR basis)

• MDEX (Malaysia): After the latest 0.3–0.4% correction, expect a broadly sideways to slightly firmer bias over the next three sessions, with nearby equivalent values likely fluctuating around EUR 890–920/t as export data and weather headlines drive intraday volatility.
• Rotterdam / Europe (physical market, indicative): Premiums to MDEX are expected to remain relatively stable in the very short term, with CIF prices directionally tracking futures but cushioned by steady demand from refiners and biodiesel blenders.