Malaysia’s palm oil production could come under pressure in 2027 if dry conditions persist, while the upcoming monsoon season may help limit the impact of Super El Niño.
PALMOILMAGAZINE, KUALA LUMPUR — Malaysia’s upcoming monsoon season could help cushion the impact of a potential Super El Niño on palm oil production, according to the Malaysian Palm Oil Council (MPOC).
However, rainfall patterns over the coming months will be critical in determining how severely dry weather could affect Malaysia’s palm oil output in 2027.
Also Read: Optimal Timing for Planting Palm Oil Seeds: Late Dry Season or Rainy Season Recommended
According Bernama, MPOC Chief Executive Officer Belvinder Sron said the impact of El Niño on palm oil production typically emerges with a lag of around nine to 12 months.
He noted that the previous Super El Niño event in 2015 was followed by a 13% decline in Malaysia’s palm oil production the following year, equivalent to approximately 2.6 million tonnes.
According to Belvinder, dry weather conditions developing in 2026 have emerged more gradually than during the 2015 event. As a result, rainfall patterns from September through November will be a key indicator of the severity of the drought and its potential impact on Malaysia’s palm oil production in 2027.
Also Read: Tight Supply and Weather Risks Support CPO Above RM4,400, Says MPOC
Southeast Asia Faces Uneven Weather Impact
The effects of El Niño across Southeast Asia are not uniform, Belvinder said.
In Indonesia, weather conditions have become progressively drier since late June, particularly across Sumatra and Kalimantan. Malaysia, meanwhile, has yet to experience critically dry conditions, although temperatures have continued to rise.
In the short term, relatively dry weather could even benefit plantation operations. Drier conditions can improve access to plantations, make harvesting more efficient, and reduce disruptions in transporting fresh fruit bunches (FFB) to mills compared with periods of heavy rainfall and flooding.
Also Read: North Sumatra Raises Palm Oil FFB Price to IDR 4,073.80/Kg for 10–20-Year-Old Trees
The risk becomes more significant, however, if dry conditions persist for more than three consecutive months.
Low rainfall, high temperatures and declining soil moisture can affect the physiological condition of oil palm trees. The impact may subsequently appear in the form of lower FFB production and oil extraction rates after a lag of approximately nine to 12 months.
“If FFB availability declines while demand remains stable, palm oil inventories could fall and market supplies could become tighter,” Belvinder said.
Also Read: Central Kalimantan Independent FFB Price Reaches IDR 3,446.47/kg in August 2026
CPO Prices Expected to Remain Firm
Beyond production risks, the market is also increasingly factoring in the potential impact of El Niño on crude palm oil (CPO) prices.
Belvinder said CPO futures on Bursa Malaysia Derivatives traded above RM4,900 per tonne in mid-August. Contracts for 2027 delivery had also traded above RM5,000 per tonne, reflecting growing market concerns over potential production disruptions from El Niño.
Also Read: Malaysia CPO Futures Rise for Fifth Day, November Contract Hits RM5,018
The current strength in CPO prices, however, is not driven solely by weather concerns.
Geopolitical tensions are also supporting the broader vegetable oil market. Disruptions to shipping in the Red Sea and reduced vessel traffic through the Strait of Hormuz have helped keep crude oil prices above US$80 per barrel.
The market is also entering a period of inventory replenishment ahead of Diwali celebrations in India, providing additional support for vegetable oils, including palm oil.
Another factor is rising domestic palm oil demand in Indonesia for the B50 biodiesel program. Belvinder expects demand to strengthen further after the three-month transition period for drawing down B40 biodiesel stocks ends in September.
Also Read: Malaysian Palm Oil Futures Hit 20-Month High as B50 Biodiesel Boosts CPO Demand
The combination of stronger Indonesian biodiesel demand and uncertainty over palm oil production in 2027 has heightened concerns about the availability of export supplies next year, he said.
Against this backdrop, palm oil prices are expected to remain above RM4,600 per tonne in September and could stay above that level through the end of the year.
Malaysia’s palm oil production typically reaches its seasonal peak in September or October before entering a production decline in the fourth quarter.
Earlier, on August 18, Malaysia’s Director-General of the Meteorological Department, Dr. Mohd Hisham Mohd Anip, said the probability of El Niño developing into an “extremely strong” or Super El Niño event between October and December had risen to more than 90%. (P2)
