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A Bloomberg News survey of seven analysts points to a roughly 3% pullback in combined palm oil output from Indonesia and Malaysia in 2027, with Indonesia seen at 49 million tons and Malaysia at 19.5 million tons. The expected dip traces back to yields that typically weaken with a lag after hot, dry spells, and this year's conditions have been unusually harsh.
For now, the market is cushioned. Palm oil futures in Kuala Lumpur slipped as much as 2.3% on Friday, touching a two-month low. In Malaysia, stockpiles are already at their highest level of 2026, and inventories could top 3 million tons by year-end as production crests and demand stays soft.
Analysts cite a potent mix of pressures: Indonesia's widening palm-based biodiesel mandate, older trees delivering smaller bunches, and persistent dryness tied to a strong El Niño. Hot and dry conditions in Indonesia are expected to linger beyond the usual April to September window, with the yield effects showing up later.
'El Niño weather happening right now is widely predicted to have an impact on output in 2027, but the extent depends on its severity and the length,' said Sathia Varqa, senior analyst at Fastmarkets Palm Oil Analytics.
Indonesia's weather agency says the rainy season that typically kicks off in October may not arrive until November or December, and it could be shorter than normal. Fires have already intensified in Kalimantan, a key palm region, with hotspot numbers hitting a decade high and disrupting fertilizer work, harvesting and logistics.
'Kalimantan has been severely affected by haze,' said Warren Tay, a trader at Eco Palm International Sdn. 'We expect the region to account for the largest share of next year's production decline.'
Layer in Indonesia's biodiesel push and aging estates, and three analysts say benchmark prices could make a run toward 5,000 ringgit per ton next year, around $1,226. Even so, the near term may look more range-bound.
'Rising palm oil inventory levels, which could hit a record high in the next one to three months, are set to limit price upside this year,' wrote Alvin Tai and Jason F. Miner of Bloomberg Intelligence's agriculture team.
The production hit might also be milder than first feared. The Indonesian Palm Oil Association now projects a 3% decline in 2027 output, down from an earlier 5% estimate.
In the short term, ample stocks and weak demand are leaning against a price spike. Looking into 2027, lower yields and policy-driven consumption could flip the script.
Source: Briefs Finance