Palm Oil Futures Ease But Weather and Policy Keep Upside Risks Alive

Palm oil futures on the Malaysian exchange are slightly softer across the forward curve, but strong export demand and a rising El Niño risk keep a floor under prices and the upside skew intact. The palm oil market is consolidating after recent gains, with the active MDEX strip for 2026–27 drifting modestly lower by around 0.3–0.6% on July 10. This pullback comes despite robust Malaysian export momentum into India, China and the Middle East and expectations of only modest production growth. At the same time, climate agencies flag a high probability that El Niño conditions will strengthen into late 2026, raising medium‑term yield and fire‑risk concerns in Indonesia and Malaysia. Against this backdrop, near‑term price corrections look shallow, while volatility around weather and biofuel policy headlines is likely to increase.

Prices

The MDEX palm oil forward curve on July 10, 2026 shows a mild downward correction but remains historically elevated in absolute terms.

Using a rough working FX rate of 1 MYR ≈ 0.20 EUR, the actively traded 2026–27 strip currently equates to about 895–945 EUR/t. The curve remains slightly upward sloping from nearby to early 2027, before flattening into 2028–29, signalling expectations of only limited real price relief over the medium term.

Supply & Demand

On the demand side, Malaysian palm oil exports have been firm. Cargo survey data indicate June 2026 exports rose about 5.8% month‑on‑month to roughly 1.39 million tonnes, with notable strength into India and the wider subcontinent. This reinforces palm oil’s competitiveness versus soft oils and continues the export recovery seen since early 2026.

Regionally, India, China, the Middle East and Africa together now account for over a third of Malaysia’s palm oil shipments, compared with about a quarter just a few years ago, showing structurally broader demand. At the same time, Indonesia is expected to tighten its exportable surplus later this year as it ramps up its domestic biodiesel mandate (B50 from July 2026) and faces relatively stagnant production. This combination of robust Malaysian exports and a structurally tighter Indonesian export balance underpins the current price floor.

On the supply side, Malaysia is entering its seasonally higher production phase from July to December. Official data for previous years show that stocks typically rebuild during this period, and recent commentary already points to rising inventories when production gains outpace exports. Medium‑term, global oilseed outlooks still envisage only modest year‑on‑year growth in Malaysian and Indonesian palm output in 2026, limiting the scope for a sustained surplus.

Weather & El Niño Watch

Climate agencies and regional forecasters now see a high probability of El Niño conditions developing and strengthening during mid‑ to late‑2026. The World Meteorological Organization and partner centres indicate El Niño is likely to dominate from July–September onward, with probabilities near or above 90% in the latest update.

For Southeast Asia, including key palm regions in Indonesia and Malaysia, this pattern usually implies warmer‑than‑normal, drier conditions and an elevated risk of drought and wildfires. Recent ASEAN and national meteorological outlooks highlight below‑normal rainfall and a heightened need for fire preparedness during the August peak of the dry season. While rainfall has so far remained sufficient to avoid acute stress, the risk skew for yields and labour‑disrupting haze in late 2026 and early 2027 is clearly to the downside.

Fundamentals & Market Sentiment

The slight softening of the forward curve on July 10, 2026 largely reflects short‑term profit‑taking after prior gains and expectations of near‑term stock rebuilding during the seasonal production upswing. The small day‑on‑day losses across the active 2026–27 contracts (around 0.3–0.6%) are not yet indicative of a trend reversal.

Fundamentally, the market is balancing three forces: (1) still‑firm demand from top importers, supported by relative price competitiveness versus soybean and sunflower oils; (2) a seasonal rise in Malaysian output and inventories in the second half of the year; and (3) growing weather and policy risks, notably El Niño‑related yield uncertainty and Indonesia’s more aggressive biofuel blending targets reducing export availability. On net, this mix argues for a sideways‑to‑firmer price bias after corrections.

Trading Outlook

• Producers / sellers: Use current price dips to extend hedging on late‑2026 and early‑2027 sales, as forward levels around 900–940 EUR/t remain attractive versus historical averages given rising El Niño and policy risks.
• Importers / refiners: Gradually rebuild coverage on Q4 2026–Q1 2027 needs on price weakness, but avoid over‑buying spot barrels ahead of the seasonal stock build; consider scaling in on further 2–3% pullbacks in BMD values.
• Speculative participants: The modest correction and still‑constructive fundamentals favour a buy‑on‑dips strategy, with weather headlines and any confirmation of tighter Indonesian exports as potential upside catalysts.

3‑Day Directional Outlook (EUR basis)

• Bursa Malaysia (CPO futures, front 3 months): Slightly softer to sideways over the next three sessions, broadly equivalent to a ±1–2% range around ~900 EUR/t as the market digests export data and monitors weather updates.
• European palm oil import market (CIF EU, implied from futures): Stable with a mild downside bias, tracking BMD but cushioned by ongoing demand from biodiesel and food sectors.