Palm Oil Futures Edge Higher as Weather and Policy Tighten 2026–27 Balance

Palm oil futures on the Malaysian exchange are grinding higher with a mildly backwardated curve, reflecting a tighter 2026–27 balance as El Niño risks and policy-driven biodiesel demand offset seasonal production gains. Prices remain underpinned despite only modest day-on-day gains. Recent trading on the Malaysian derivatives market shows nearby and forward contracts clustered in a relatively tight 4,530–4,750 MYR/t band, with modest but broad-based increases across the active 2026–27 strip. This configuration points to a market that is cautiously pricing weather and policy risks into 2027 while acknowledging a seasonal upturn in output. Weather outlooks for Southeast Asia and fresh fundamental signals from Malaysia suggest that downside in palm oil could remain limited in the short term, even as competing vegetable oils and macro sentiment cap rallies.

Prices

Crude palm oil (CPO) futures on the Malaysian exchange closed higher on July 23, 2026 across all actively traded 2026–27 contracts. The front August 2026 contract settled at 4,546 MYR/t, up 16 MYR or 0.35% on the day. Nearby months through January 2027 gained between 16 and 25 MYR, with percentage increases of roughly 0.3–0.5%.

The curve is mildly backwardated from a September 2026 settlement at 4,606 MYR/t up to a peak around March–April 2027 at approximately 4,745–4,751 MYR/t, then easing slightly towards late 2027 at roughly 4,663–4,672 MYR/t. This structure signals firm nearby demand and lingering concern over medium-term supply, rather than a classic surplus market. Turnover on the main 2026–27 maturities remains healthy, underscoring active hedging and speculative participation.

*EUR conversions are indicative, based on an approximate rate of 1 EUR ≈ 5.05 MYR.

Supply & Demand

Malaysia’s June 2026 CPO output rose by about 8% month-on-month to roughly 1.63 million tonnes as the industry entered its seasonal upswing, but production still lagged last year’s level, confirming ongoing structural tightness in labour and yields. Exports increased by just over 6% versus May to around 1.20 million tonnes, yet remained roughly 4% below June 2025 amid softer demand from some major buyers. 

This leaves the export pipeline adequately supplied but not burdensome, and the current mild backwardation suggests that traders do not expect a rapid stock build into late 2026. Policy support is also tightening balances: Malaysia’s ramp-up of its B15 biodiesel mandate is set to divert more palm oil into domestic energy use over marketing year 2026–27, absorbing part of the incremental seasonal output and reducing export availability. 

Fundamentals & Weather

Medium-term fundamentals are increasingly shaped by El Niño-linked weather risks. International and regional climate centres now expect El Niño conditions to prevail with high probability through the second half of 2026, with forecast Niño 3.4 sea-surface temperature anomalies well above the El Niño threshold and likely strengthening into late 2026. 

For Southeast Asia, outlooks point to above-normal temperatures and pockets of below-normal rainfall across parts of the Maritime Continent, including Indonesia and Malaysia, during the current June–August period.  This pattern typically raises the risk of moisture stress for oil palm, especially if dryness extends into the main production months. Indonesian forecasters highlight an unusually dry core dry season peaking around August 2026, with elevated wildfire risk in key plantation regions. 

At the same time, field reports and international assessments stress that, so far, oil palm areas in Indonesia and Malaysia continue to receive enough rainfall to avoid immediate, widespread yield losses, and newer drought-tolerant varieties may cushion the impact of a strong El Niño.  However, any prolonged deficit in rainfall into late 2026 could depress fresh fruit bunch yields in 2027, lending structural support to the back end of the futures curve.

On the demand side, biodiesel usage under Malaysia’s B15 blend and firm structural imports from India, China and emerging African buyers keep the floor under consumption, even though growth is moderated by competition from Indonesian supplies and the relative pricing of soybean and sunflower oil. 

Short-Term Outlook & Trading Ideas

In the near term, the palm oil market is balancing seasonal production gains against tightening policy and weather risks. With front-month MDEX futures near 4,550 MYR/t (about 900 EUR/t) and the curve gently backwardated, the market appears fairly priced for a modestly tight 2026–27 scenario rather than an extreme shortage.

• Producers: Consider layering in hedges on late-2026 and early-2027 positions while futures remain above 4,600 MYR/t but below recent spikes, locking in attractive margins against still-elevated cost structures and potential yield pressure from El Niño.
• Importers/Refiners: Use current price stability and seasonal stock rebuild to secure partial cover for Q4 2026–Q1 2027 needs, but retain some flexibility in case macro headwinds or a milder-than-feared El Niño trigger price setbacks.
• Speculators: The combination of modest backwardation, strong El Niño probabilities, and rising biodiesel demand favours a cautiously bullish bias, but with tight risk limits given sensitivity to movements in competing oilseed and energy markets.

3-Day Directional View (in EUR terms)

• MDEX CPO front month (Malaysia): Sideways to slightly firm around ~900 EUR/t; modest upside bias if fresh weather headlines confirm increasing dryness.
• Deferred MDEX (Q1–Q2 2027): Stable to mildly firmer near 935–945 EUR/t, supported by growing concern over potential 2027 yield impacts.
• European CIF refined palm olein equivalents: Expected to track MDEX moves in EUR terms with a slight lag, staying broadly rangebound but underpinned by the same weather and biodiesel dynamics.