Palm Oil Prices May Surge as Indonesia's Output Falls Amid El Niño

Palm oil production is expected to tighten in 2027 due to El Niño-induced dry weather, potentially leading to higher prices. This could result in palm oil trading at a premium over soyoil, as it did in 2024, according to Eddy Martono, chairman of the Indonesian Palm Oil Association.

Palm oil is mainly produced in Indonesia and Malaysia, competing with soyoil from South America and sunflower oil from the Black Sea region. Indonesia's palm oil output is forecasted to fall by 3.7% in 2027, reaching 56.6 million metric tonnes, while demand for biodiesel is expected to rise 18.5% year-over-year to a record 17.4 million tonnes.

As a result of lower production and higher domestic consumption, Indonesia's exports are anticipated to decrease by 14.9% in 2027 to 26.5 million tonnes, the lowest level since 2016. This tightening supply could drive up prices for palm oil, making it more competitive with other oils.