El Niño Weather Threatens Palm Oil Supply and Prices
Palm oil production in Indonesia and Malaysia is expected to decline by around 3% in 2027 due to prolonged dry weather caused by a strong El Niño. Analysts predict that this will lead to higher global prices, potentially reaching 5,000 ringgit per ton.
The Indonesian Palm Oil Association has revised its forecast from an earlier estimate of 5% decline in production to 3%. The association cited the impact of heat, drought, and wildfire haze on plantations in Kalimantan as a major concern. However, high Malaysian palm oil inventories could limit price gains in the short term.
Aging plantations and Indonesia's expanding biodiesel mandate are putting additional pressure on global supply-demand balance by increasing domestic consumption. The impact of El Niño on production may be less severe than initially expected, but analysts still expect risks to global supply.