Palm Oil Futures Edge Higher, But Heavy Stocks Cap Upside

Palm oil futures are edging higher on the Malaysian derivatives exchange, but abundant stocks in Malaysia and weakness in the broader oilseed complex are limiting further gains. The forward curve remains gently upward sloping into mid‑2027, reflecting both comfortable nearby supply and medium‑term weather and biodiesel demand risks. After several days of firmness, the palm oil market is taking its cues from movements in soybean oil and other vegetable oils. Softer soybean and canola prices have weighed on oilseed sentiment, while Malaysian palm oil reacts to both external price correlations and local stock dynamics. At the same time, Chinese vegetable oil markets have provided some support, preventing deeper losses. Weather developments tied to El Niño and Indonesia’s higher biodiesel blending mandate remain key medium‑term drivers for traders assessing how long current stock levels can suppress rallies.

Prices

The MDEX crude palm oil curve on 20 October 2026 shows a modestly bullish tilt from the nearby to mid‑2027 contracts. The front November 2026 contract settled at 4,573 MYR/t, up 58 MYR or 1.27% on the day, while December 2026 closed at 4,706 MYR/t, up 40 MYR (+0.85%). January 2027 finished at 4,797 MYR/t, gaining 31 MYR (+0.65%). Further along the curve, prices climb gradually towards the 5,000 MYR/t handle before easing slightly: Recent external quotations confirm that international benchmarks are broadly aligned with these levels. Daily data from Malaysia show October settlement prices moving in a 4,524–4,769 MYR/t range earlier in the month, reinforcing the idea of a consolidation phase around the mid‑4,000s.

Supply & Demand

Fundamentals across the oilseed complex are currently leaning bearish for palm oil. In North America, soybean futures have weakened, with selling pressure exacerbated by better harvest weather in the US Midwest and the unwinding of speculative long positions. At the same time, export demand for US soybeans, particularly from China, remains solid, partially cushioning the downturn but not reversing it. Canola prices in Canada have also softened, despite earlier expectations that poor harvest conditions might boost values. Rains repeatedly delayed fieldwork, but as harvest completion advanced, additional farmer selling emerged, adding to supply and pressuring the market. This weakness in soybeans and canola indirectly weighs on palm oil through price competition in the global vegetable oil complex. In Malaysia, recent statistics indicate a sharp build in palm oil inventories. Malaysian Palm Oil Board data for September point to closing stocks in excess of 2.1 million tonnes, up by more than 30% month‑on‑month, as production rose strongly while exports dropped double‑digits. This combination of robust output and slower offtake is the main reason rallies on MDEX have been capped despite occasional short‑covering. On the demand side, Indonesia’s B50 biodiesel programme, which came into effect in mid‑2026, is structurally increasing domestic palm oil usage. Early estimates suggest that the programme could absorb on the order of tens of millions of tonnes of CPO annually, tightening export availability over time. However, these medium‑term tightening factors are, for now, outweighed by the visible near‑term stock overhang in Malaysia.

Weather & Structural Drivers

Weather is becoming a more prominent component of palm oil pricing. El Niño conditions are firmly in place, with regional climate outlooks indicating a high likelihood of below‑normal rainfall across much of the Maritime Continent, including key palm‑growing areas of Indonesia and parts of Malaysia, during October–December 2026. These patterns raise concerns about soil moisture deficits and potential yield impacts into 2027. Climate and plantation‑focused assessments highlight that the driest period tied to this El Niño episode is expected from October 2026 through January 2027, particularly in Indonesia’s Sumatra and Kalimantan regions. While Malaysia has so far avoided extreme dryness, rising temperatures and localized below‑normal rainfall in certain areas suggest growing stress on palms if conditions persist. Nonetheless, the upcoming Northeast monsoon and associated thunderstorms later in the year could partly alleviate dryness in parts of Malaysia, limiting the immediate downside for yields. Beyond weather, policy remains a key structural driver. Indonesia’s higher biodiesel blend continues to underpin domestic demand, while evolving sustainability and deforestation regulations in consuming regions such as the EU influence trade flows and price differentials between origins. For now, the market is effectively balancing heavy current stocks against a credible risk of lower yields and tighter export supplies in 2027.

3–6 Month Market Outlook

Over the next quarter, the palm oil market is likely to remain range‑bound but volatile. The current MDEX forward curve — rising from around 4,573 MYR/t in November 2026 towards roughly 5,000 MYR/t by mid‑2027 — indicates that traders expect some medium‑term tightening but see little justification for a sharp near‑term breakout. Key bearish factors in this horizon include:

• Elevated Malaysian stocks after a strong production phase and weaker recent exports.
• Soft pricing in competing oils (soybean oil, canola) that constrains palm’s ability to decouple to the upside.
• Macro headwinds from energy markets, where lower crude oil prices reduce the attractiveness of vegetable oils as biodiesel feedstocks.

Countering these are several supportive elements:

• Indonesia’s B50 mandate, which raises structural domestic consumption of palm oil and can reduce export volumes over time.
• El Niño‑linked dryness across parts of Indonesia and Malaysia, which could start to curb yields with a lag.
• A still‑wide discount of palm oil relative to soybean oil, which encourages substitution toward palm in food and industrial uses.

On balance, the downside appears limited by demand substitution and weather risk, but the upside remains capped until there is clearer evidence of tightening physical availability or a sustained rebound in exports.

Trading Outlook

• Producers / Sellers: Consider using the gently upward‑sloping forward curve to layer in hedges on 2027 production above current nearby levels, while retaining some upside via options in case El Niño impacts prove stronger than expected.
• Industrial buyers / Refiners: Current mid‑4,000s MYR/t prices, combined with palm’s discount to rival oils, argue for securing a portion of Q1–Q2 2027 needs on dips, but avoid over‑committing until Malaysian stocks show a clear turning point.
• Speculators: With fundamentals still tilted slightly bearish in the very short term, strategies favouring selling rallies towards the upper end of the established range, hedged against weather and policy shocks, appear more attractive than outright long positions.

3‑Day Directional Outlook

• MDEX front month (Nov 2026): Mildly bullish bias after the recent 1.3% gain, but likely confined to a narrow range as traders watch soybean and energy markets for direction.
• Nearby 2026/27 strip: Slight upward drift possible, reflecting continued hedging interest and persistent El Niño‑related concerns, yet heavy Malaysian stocks should limit any sharp spike.
• International benchmarks: Expected to track MDEX and broader vegetable oil spreads closely, with modest firming if soy oil stabilizes and Chinese buying stays active.