El Niño Fears Fuel Palm Oil Price Surge

The Malaysian Palm Oil Council (MPOC) has expressed concerns that a potential 'Super El Niño' weather phenomenon could impact palm oil production in Malaysia. However, MPOC CEO Belvinder Sron believes that the upcoming monsoon season in December may help mitigate this effect.

The impact of El Niño on palm oil output typically occurs 9-12 months after the event, with a notable decrease in production seen during the previous Super El Niño in 2015. That year, Malaysia's palm oil production fell by 13% or 2.6 million tonnes in the following year.

Belvinder noted that rainfall between September and November will be critical in determining the severity of dry conditions and the extent of El Nino's impact on Malaysia's palm oil production in 2027. In Indonesia, weather conditions have turned drier since late June, particularly in Sumatra and Kalimantan, while Malaysia has yet to experience critical dryness.

Belvinder also pointed out that drier weather can improve harvesting efficiency and transportation of fresh fruit bunches (FFB) to mills by improving field access and reducing disruptions caused by flooding. However, prolonged dryness lasting more than three consecutive months could stress oil palm trees, eventually reducing FFB production and oil yields.

CPO prices are currently bullish due to growing market concerns over the potential impact of El Niño, with 2027 forward contracts trading above RM5,000 per tonne. The current momentum in palm oil prices also reflects geopolitical tensions that have elevated crude oil prices above $80 per barrel and India's Diwali restocking season.