Palm Oil Slides From Recent Highs as El Niño Risk Looms Over 2027

MDEX palm oil futures retreated across the forward curve on 10 July, but the pullback looks more like a pause in a structurally tight market shaped by Indonesia’s B50 biodiesel mandate and rising El Niño risk into late 2026. After several weeks of firm prices, crude palm oil (CPO) on Bursa Malaysia and the MDEX complex has eased in line with softer energy markets and some profit-taking. Nearby and forward contracts from July 2026 to mid‑2027 all closed lower by around 1–2% day‑on‑day, yet the curve remains relatively flat and elevated versus historical averages. At the same time, forecasts for a potentially severe El Niño from Q4 2026 and higher biodiesel blending in Indonesia point to tighter balances into 2027, limiting downside. Weather in core Southeast Asian growing regions is currently adequate, but rainfall risks are skewed to the downside over the coming 6–12 months.

Prices

The latest MDEX data (10 July 2026) show a broad-based decline along the palm oil futures curve. The front July 2026 contract settled at MYR 4,455/t (−0.6% d/d), while the actively traded September 2026 position closed at MYR 4,513/t (−1.8% d/d). Further out, contracts through mid‑2027 fell by around 1.0–1.8%, with most settlements clustered in a narrow MYR 4,545–4,677/t band, highlighting a relatively flat forward structure.

Converting the key nearby values into EUR, using an indicative rate of 1 EUR = 5.1 MYR, places July 2026 around EUR 874/t and September 2026 near EUR 885/t. Recent physical CPO indications in Malaysia for July delivery, at roughly MYR 4,480/t, are broadly in line with these futures levels, reinforcing that the current move represents a mild correction rather than a structural break lower.

Supply & Demand

On the supply side, global palm oil output in 2026/27 is forecast to grow only marginally, with Malaysia’s production projected around 19.7 million tonnes amid labour constraints and concerns that emerging El Niño conditions could cap yield gains. Indonesia remains the dominant producer, but a rising share of its crop will be consumed domestically due to biofuel policies. From 1 July 2026, Indonesia’s implementation of a B50 biodiesel mandate sharply increases local palm oil use in energy, reducing export availability.

Demand remains underpinned by food and oleochemical sectors, while energy-related offtake is set to strengthen again if crude oil prices stabilise or rise. Recent analyses from regional banks and agencies highlight that B50 could significantly tighten the global exportable surplus, especially if simultaneous weather-related supply issues emerge in Malaysia and Indonesia. Edible oil importers in India, China and the EU are therefore likely to face firmer competition for seaborne cargoes into 2027.

Weather & El Niño Outlook

Current conditions across key oil palm regions in Malaysia and Indonesia are generally near normal, with adequate soil moisture following a seasonally wet June. However, climate outlooks for June–August 2026 point to developing El Niño-like patterns, with decreased cloudiness and a tendency towards drier weather over parts of Southeast Asia.

More importantly for markets, NOAA has raised the probability of a very strong El Niño to over 80% for October–December 2026, which historically has depressed palm yields by 2–5% in severe episodes, with the main production impact materialising in the following year. Malaysian forecasters likewise warn of a potential El Niño into early 2027, implying rising downside risk to 2027 output if rainfall deficits persist.

Fundamentals & Market Tone

The modest backwardation and tight clustering of MDEX prices between late 2026 and mid‑2027 reflect a market that expects constrained supply but not yet a full-blown shortage. Nearby contracts’ pullback is linked to weaker crude oil prices and some profit-taking after a rally that brought CPO into the MYR 4,400–4,650/t range projected for July by industry bodies.

Fundamentally, the balance of risks appears skewed to the upside: any confirmation of severe El Niño impacts on actual rainfall, or evidence of aggressive biodiesel-driven inventory drawdowns in Indonesia, could push the curve higher. Conversely, macroeconomic headwinds and competition from other vegetable oils (especially soy and sunflower oil) may cap rallies if global growth slows or if other oilseed crops surprise to the upside.

Trading Outlook

• Producers / Sellers: Use current price weakness in the MYR 4,450–4,550/t band (≈ EUR 870–890/t) on nearby MDEX contracts to scale in additional hedges for Q4 2026–Q2 2027, given elevated El Niño and B50-related upside risks.
• Consumers / Refiners: Consider layering in coverage on price dips for late‑2026 and early‑2027 deliveries, but avoid over-hedging far forward until El Niño impacts on actual production and competing oilseed crops are clearer.
• Speculative participants: The recent 1–2% correction offers a more attractive entry point for medium‑term long positions, with clearly defined downside near recent technical support and upside tied to potential weather and policy shocks.

3‑Day Directional Outlook (in EUR)

• MDEX front month (Jul–Sep 2026, Malaysia): Sideways to slightly firmer in EUR terms, as modest MYR softness could offset small MYR‑based price gains.
• Physical CIF Europe refined palm olein: Mildly supported, tracking MDEX and crude oil; buyers may find limited additional downside over the next 2–3 sessions.
• Relative value vs. soy oil: Palm oil likely maintains a discount, but any escalation in El Niño concerns could narrow the spread modestly in the very near term.