Palm oil futures steady in tight band as El Niño risk builds

Nearby palm oil futures on MDEX are consolidating in a tight MYR 4,500–4,600/t range, with a mildly backwardated curve into 2027 that reflects tight but not yet critical supply concerns and growing weather risk. Ultra‑deferred 2028–29 positions remain illiquid and flat, underscoring that current pricing is focused on near‑term fundamentals rather than long‑dated scarcity.

After a sharp correction in the expiring May 2026 contract, the forward strip has stabilised with modest gains across June–November 2026. This stability masks increasing uncertainty: Indonesian output is projected to decline slightly in 2026, Malaysia faces structural constraints on expansion, and forecasters warn of a potentially strong El Niño later this year, which could tighten balances. At the same time, high energy prices, Indonesia’s move toward higher biodiesel blending and recent export taxes underpin the demand side, while geopolitical tensions and logistics risks temper import buying in some regions.

📈 Prices & Curve Structure

The MDEX palm oil curve on 7 May 2026 shows front‑month May 2026 under pressure at MYR 4,527/t (‑2.5% d/d), while June–November 2026 contracts hold near the upper end of the recent trading band at MYR ~4,560–4,610/t. From early 2027 onward, prices ease gradually toward ~MYR 4,510/t by late 2027, indicating mild backwardation and a market that remains tight but not in panic.

Recent external price reporting confirms that nearby Bursa/MDEX palm oil futures remain in the MYR 4,500–4,600/t area, equivalent to roughly EUR 860–900/t at current FX. This level embeds a moderate risk premium for weather and policy but is still below the peaks seen during earlier supply crises. The illiquid, unchanged 2028–29 positions near MYR 4,437/t highlight limited visibility and participation in ultra‑deferred tenors.

Contract	Last (MYR/t)	Change (MYR)	Approx. EUR/t*
May 2026	4,527	‑115	~865
Jul 2026	4,591	+12	~877
Nov 2026	4,604	+8	~880
May 2027	4,564	+22	~874
Nov 2027	4,512	+33	~864

*Indicative conversion at ~MYR 5.23/EUR; all EUR values approximate.

🌍 Supply & Demand Drivers

On the supply side, Indonesia and Malaysia remain pivotal. Recent analysis points to a slight decline in Indonesian palm oil output in 2026 to around 49 Mt, with Malaysian production also seen edging down to around 19.5 Mt as ageing trees, labour constraints and disease limit yield gains. At the same time, Malaysia’s exports are expected to remain firm through 2026, relying on drawdowns in domestic stocks and productivity improvements.

Export flows are, however, showing signs of short‑term softness. Preliminary April data suggest Malaysian exports eased, particularly toward the Middle East, as higher prices and regional conflict weighed on demand. Indonesia, meanwhile, has seen volatility in shipments: some months of strong exports have been followed by sharp year‑on‑year declines, reflecting changing tax policies and domestic biodiesel requirements. Overall, the global balance still looks tight but not structurally short.

Demand‑side support is increasingly linked to energy markets and biofuel policy. Jakarta has reiterated its intention to move from the current B40 biodiesel blend toward B50 around July 2026, which would structurally increase domestic palm oil uptake and reduce export availability. At the same time, high crude oil prices and elevated refinery margins keep biofuel economics attractive, anchoring palm oil in a higher price corridor even when edible‑oil demand pauses.

📊 Fundamentals & Weather Outlook

Stocks in key producers have begun to rebuild from the very tight levels seen in early 2026, but inventories remain below comfortable norms relative to forward demand. Malaysian stocks, for example, fell month‑on‑month into early 2026 despite strong exports, highlighting how little cushion exists if production underperforms or biofuel demand surprises to the upside. Forward curves on MDEX reflect this by maintaining backwardation, rewarding nearby supply.

The biggest emerging risk is weather. Multiple climate agencies and regional officials now warn of a strong to potentially “super” El Niño developing between May and July 2026, implying hotter and drier‑than‑normal conditions across much of South‑East Asia later this year. For oil palm, sustained heat and moisture stress in July–October could depress fresh fruit bunch yields and slow output growth into 2027. Markets are beginning to price this, but with front‑month futures still near MYR 4,500–4,600/t, a severe event is not yet fully embedded.

In the near term (next 4–6 weeks), forecasts for Malaysia and Indonesia point to relatively normal to slightly warmer conditions, with the main dryness risk skewed toward the second half of 2026. This gives producers a limited window to optimise field practices and fertiliser application before possible stress conditions emerge, but also means that any early sign of yield loss could trigger a rapid repricing of the forward curve.

📆 Trading & Risk Outlook

• Producers (sellers): The current MYR 4,550–4,600/t (≈EUR 870–880/t) range for mid‑2026 offers attractive forward margins with limited contango. Given rising El Niño risk and tighter medium‑term supply, consider layering in incremental hedges on a scale‑up basis rather than aggressively selling the entire 2026/27 crop at current levels.
• Importers & refiners: Nearby price softness in the expiring May 2026 contract provides a short window to secure coverage for Q3 2026 at sub‑EUR 900/t equivalents. Stagger purchases and avoid being under‑covered beyond Q4 2026, as a strong El Niño or accelerated Indonesian biodiesel implementation could quickly lift prices and narrow optionality against other vegetable oils.
• Speculative participants: The firm but not extreme backwardation, combined with growing weather and policy risk, favours a mild bullish bias with tight risk controls. Spreads along the 2026–27 strip may offer opportunities if El Niño signals strengthen and front‑month contracts begin to outperform deferred positions.

📍 Short‑Term Price Indications (3‑Day Outlook)

• MDEX front month (Kuala Lumpur): Expected to trade sideways to slightly higher within roughly MYR 4,500–4,600/t (≈EUR 860–880/t), as short‑covering offsets the recent May contract sell‑off.
• MDEX Q3 2026 strip: Likely to remain anchored around MYR 4,560–4,610/t (≈EUR 870–885/t), with modest upside if crude oil strengthens further or fresh El Niño headlines emerge.
• Deferred 2027 contracts: Seen broadly stable near MYR 4,510–4,570/t (≈EUR 865–875/t), with limited liquidity; any sharp weather‑driven revision to 2027 output could steepen backwardation from current levels.