Palm Oil Futures Ease but Forward Curve Stays Firm on Weather Risks

MDEX palm oil futures are slightly softer on the near months but the forward curve remains firmly above MYR 4,800/t into early 2027, signalling a market that is consolidating rather than collapsing. Weather-related supply risks under an emerging El Niño and solid demand from key importers continue to underpin prices despite modest daily losses. After a strong rally earlier in the year, palm oil is now trading in a tight, elevated range on the Bursa Malaysia Derivatives Exchange. Nearby contracts have eased marginally, but the curve stays upward sloping into 2027–2028, indicating that traders still price in weather and yield risks in Southeast Asia. At the same time, high global stocks in competing oils and macro uncertainty are capping the upside. The result is a technically firm but fundamentally balanced market where price corrections are shallow and quickly met by consumer buying.

Prices

The benchmark active months on 6 August 2026 show a mildly weaker tone on the front strip, with limited downside:

• Sep 2026 closed at MYR 4,635/t, down MYR 11 (-0.24%) on the day.
• Oct 2026 settled at MYR 4,693/t, down MYR 9 (-0.19%).
• Nov 2026 finished at MYR 4,740/t, only MYR 5 lower (-0.11%).
• Jan 2027 printed MYR 4,815/t, virtually unchanged (-0.04%).

Further out, prices remain clustered around MYR 4,800–4,850/t through mid‑2027, with only a gentle softening toward MYR 4,724/t for 2028–2029 positions. This structure signals a market that expects sustained cost support and weather risk premia rather than a rapid reversion to pre‑rally levels.

(EUR/t values are approximations based on a recent exchange rate assumption of about 1 EUR ≈ 5.15 MYR.)

Supply & Demand

Recent Malaysian data show that crude palm oil production rebounded in March 2026 by about 7% month‑on‑month after several months of decline, with East Malaysia up 11% and Peninsular Malaysia up 4%. At the same time, exports surged by around 41% m/m, reaching the highest level in five months and highlighting robust global demand from food and energy sectors.

This combination of improved output and strong offtake has prevented inventory overhang and helps explain why the futures curve is high but not aggressively backwardated. Academic work also suggests that, while Indonesia and Malaysia dominate export volumes, they do not wield full price‑setting power, making palm oil sensitive to developments in rival oils and macro conditions rather than supply alone.

Outside palm oil, ample stocks and recent price weakness in soy, corn and wheat have somewhat tempered the bullish energy from vegetable oils overall, but palm oil still benefits from its cost advantage and versatility. At the same time, expectations of firm biodiesel mandates in key producing countries continue to underpin structural demand, limiting the scope for a pronounced correction.

Weather & Crop Outlook

Climate models and recent updates point to a strengthening El Niño pattern through the second half of 2026, a configuration that typically brings drier‑than‑normal conditions to parts of Southeast Asia, including major palm‑growing areas in Indonesia and Malaysia. Discussions in regional meteorological circles and recent local commentary indicate that August is likely to be drier than average after a relatively wetter July, reinforcing medium‑term yield risk for plantation crops if dryness persists.

However, so far in 2026, palm regions are still receiving sufficient rainfall, and agronomists note that newer, more drought‑tolerant palm varieties could cushion yield impacts compared with previous strong El Niño episodes. This mitigated but not eliminated risk profile is a key reason the forward curve remains elevated but orderly: traders see a non‑negligible probability of production stress in 2027, yet no imminent supply shock.

Market Fundamentals & Drivers

• Curve shape: The upward‑sloping structure from ~MYR 4,635/t (Sep 2026) toward ~MYR 4,850/t (early 2027) and only slight easing into 2028–2029 indicates a market pricing persistent cost and weather risks rather than near‑term scarcity.
• Production and exports: The Q1–Q2 2026 recovery in Malaysian production alongside very strong exports underlines that demand remains resilient, especially from Asia and the Middle East.
• Competing oils and macro: High global stocks of other grains and oilseeds, combined with recent softness in energy prices, are capping speculative enthusiasm in palm oil despite supportive fundamentals.
• Structural demand: Expansion of biodiesel mandates and ongoing growth in food processing usage underpin a solid demand floor, especially in developing economies where palm oil remains the cheapest major vegetable oil alternative.

Trading Outlook (Next 1–3 Weeks)

• Producers / Sellers: Use current levels above ≈ EUR 900/t on nearby months to extend hedging on 2026–H1 2027 sales, prioritising a layered approach in case of further weather‑driven spikes.
• Industrial buyers: Gradual scale‑down buying into minor dips below ≈ EUR 900/t appears justified, given the still‑elevated forward curve and El Niño‑related yield risks; avoid being structurally short into Q4 2026–Q1 2027.
• Speculative participants: Market structure and fundamentals favour buying on dips rather than chasing rallies; tight stops are advisable as any improvement in rainfall or further weakness in rival oils could trigger short‑term corrections.

3‑Day Directional Outlook

• Bursa Malaysia (MDEX) crude palm oil: Sideways to slightly firm; range‑bound trade expected around MYR 4,600–4,750/t (≈ EUR 890–930/t) as the market digests weather headlines and cross‑vegetable‑oil signals.
• European palm oil values (CIF Rotterdam, indicative in EUR): Mildly supported in the short term in sympathy with MDEX and on stable demand, but strong global softseed supplies should limit any sharp near‑term upside.