Palm Oil Futures Edge Higher as Stocks Swell and El Niño Looms

Palm oil futures are grinding higher along the curve, with near months on MDEX back above MYR 4,500/t, supported by strong biodiesel demand and forward supply concerns despite historically high inventories. The market is navigating a nuanced setup: Malaysian stocks have climbed to the highest levels in more than a decade on the back of a sharp production rebound in September, yet prices remain underpinned by robust biofuel use, firm competing vegetable oils and expectations that a strengthening El Niño will curb yields into 2027. Recent trading on the Malaysian Derivatives Exchange shows a modestly upward-sloping forward curve from late 2026 into mid‑2027 before flattening, suggesting expectations of tighter fundamentals ahead but no outright shortage. Weather outlooks for Southeast Asia point to below‑normal rainfall into the October–December period, adding a latent bullish layer, while high carry and ample nearby supply temper any immediate price spike.

Prices

Palm oil futures on the MDEX closed on 23 October 2026 with a firmer tone across the active strip:

• November 2026 settled at MYR 4,587/t, up 0.78% on the day.
• December 2026 ended at MYR 4,733/t (+0.80%).
• January 2027 printed MYR 4,818/t (+0.54%) with the highest single‑contract volume.
• Front 2027 months steadily increase toward ~MYR 5,055/t by May 2027 before easing slightly into late 2027.
• Lightly traded 2028–2029 contracts are indicated around MYR 4,681/t, marginally below the nearby 2027 highs.

The curve currently signals a mild contango from late‑2026 to mid‑2027, consistent with abundant prompt supply and significant carry, followed by a gentle softening further out as the market prices in a more balanced long‑term outlook.

Supply & Demand

Malaysia’s September 2026 data show a strong production rebound and a pronounced stock build. Crude palm oil output rose about 16% month‑on‑month and 15% year‑on‑year to roughly 2.1 million tonnes, while palm oil inventories climbed more than 24% to the highest level in over ten years, according to analysis of the latest MPOB release and sector research. Despite these heavy stocks, nearby CPO prices have held around the MYR 4,500/t area, helped by solid biodiesel demand in key consuming countries and relatively firm prices in competing oils such as soybean oil. Indonesian reference prices for crude palm oil were raised for October, reflecting a modest month‑on‑month increase in international valuations even as physical availability remains ample. On the demand side, Asia remains the key pull: domestic biofuel mandates in Indonesia and steady import demand in India and other emerging markets continue to absorb supply, even as food‑related usage shows limited incremental growth. High inventories in Malaysia and comfortable stocks in Indonesia suggest no near‑term physical tightness, but forward buying interest is emerging on concerns over 2027 output under El Niño conditions.

Fundamentals & Weather

Structurally, the current futures curve reflects a classic high‑stock, high‑carry environment in the short run, paired with growing weather‑driven risk further out. The strong builds in Malaysian inventories are the cumulative result of recent months’ production outpacing exports, as confirmed by preliminary MPOB balance data showing output and imports running well ahead of shipments. Climate outlooks for October–December 2026 indicate a high probability of below‑normal rainfall and above‑normal temperatures across much of the Maritime Continent, including major palm oil regions in Indonesia and Malaysia, consistent with an El Niño pattern. While short‑term field operations can benefit from drier conditions after the wet season, prolonged rainfall deficits are typically negative for yields with a lag of roughly 9–12 months, implying potential output pressure in late 2027. National climatological data also highlight the seasonal transition in Malaysia from the southwest to the northeast monsoon around October, with heavier rains normally returning; under El Niño, however, these rains may be less reliable, reinforcing market concern about medium‑term yield risk.

Market Outlook & Trading View

In the very near term (coming weeks), high stocks and the upward‑sloping MDEX curve argue for a range‑bound to slightly firm price environment, where any fresh rallies are likely capped unless export demand surprises to the upside. The modest daily gains along the curve on 23 October suggest that participants are incrementally pricing in the weather risk without abandoning the high‑stocks narrative. Over the next 3–6 months, the key swing factors will be: (1) the pace at which Malaysian and Indonesian stocks can be drawn down through exports and domestic biodiesel use; (2) confirmation of El Niño persistence and its impact on plantation moisture stress; and (3) policy developments affecting export levies, reference prices and biofuel mandates in Indonesia and other consuming countries. Upcoming MPOB monthly releases and regional policy announcements will be closely watched catalysts.

Trading recommendations (directional)

• Producers / sellers: Consider layering in incremental hedges in the Jan–May 2027 strip where futures trade around MYR 4,800–5,050/t, using options to retain upside in case El Niño‑related supply losses materialize faster than expected.
• Physical buyers / refiners: Use current contango to secure nearby coverage while avoiding excessive forward length beyond mid‑2027, where the curve flattens and weather uncertainty is highest.
• Speculative participants: Favor a cautiously bullish bias via call spreads or bull calendars (long mid‑2027 vs short late‑2026) that monetize potential tightening in 2027 while limiting downside if high stocks continue to weigh on the complex.

3‑day directional outlook

• MDEX front‑month (Nov 2026): Mildly bullish bias; likely to trade with a firm tone above MYR 4,500/t, with dips met by commercial buying.
• MDEX Q1 2027 strip (Jan–Mar): Slightly stronger relative to front month as weather concerns keep a modest risk premium along early‑2027 contracts.
• Far‑dated 2028–2029 contracts: Stable to slightly soft; thin liquidity and ample perceived long‑term capacity cap upside for now.