Malaysia Monitors 2027 Palm Oil Output as Super El Niño Risk Exceeds 90%
Malaysia is monitoring rainfall as the probability of a very strong El Niño between October and December has risen above 90%. MPOC says the December monsoon could ease drought pressure, while any production impact would probably emerge after a nine-to-12-month lag.
Rainfall will determine the 2027 production risk
Malaysia’s palm oil industry is monitoring the prospect of a very strong El Niño after the probability of a Super El Niño developing between October and December rose above 90%. The central question is whether dry conditions will persist long enough to damage oil palm physiology and reduce fresh fruit bunch and crude palm oil output in 2027.
InfoSAWIT Sumatera, citing Bernama, reported that Malaysian Palm Oil Council Chief Executive Officer Belvinder Sron expects the monsoon season, forecast to arrive in December, to help ease drought pressure. However, rainfall from September through November will be a critical indicator of the likely effect on next year’s production.
Dry weather in Malaysia has not yet reached a critical stage, although temperatures are trending higher. Conditions have developed more slowly than during the 2015 El Niño. Indonesia began experiencing drier weather at the end of June, particularly in Sumatra and Kalimantan, adding a regional dimension to concerns over palm oil supply.
Previous El Niño cut output by 2.6 million tonnes
The experience of 2015 provides the main reference point for the market. That El Niño affected Malaysian production in the following year, when output fell by about 13%, equivalent to 2.6 million tonnes. MPOC cautioned that the effect of El Niño on palm oil production generally becomes visible only after a lag of around nine to 12 months.
A short dry spell can initially benefit plantation operations. Better access to estates supports harvesting, while fresh fruit bunches can be transported to mills with fewer weather-related interruptions. The balance changes if drought lasts for more than three consecutive months. Low rainfall, high temperatures and declining soil moisture can then reduce yields, although the resulting production loss may not appear until months later.
The December monsoon could therefore limit the damage if it restores moisture before prolonged water stress develops. If rainfall remains insufficient and fresh fruit bunch production falls while demand stays strong, palm oil stocks could decline and supply conditions could tighten.
Futures already reflect tighter supply concerns
Weather risk is supporting an already firm crude palm oil market. InfoSAWIT Sumatera reported that futures on Bursa Malaysia Derivatives traded above RM4,900 per tonne in mid-August, while contracts for 2027 delivery changed hands above RM5,000 per tonne. Palm oil prices were projected to remain above RM4,600 per tonne in September and potentially hold that level through year-end.
The market is also assessing geopolitical tensions affecting vegetable oils and energy, together with rising Indonesian domestic palm oil requirements for the B50 biodiesel programme. Greater biodiesel demand and uncertainty over 2027 production have increased attention on the amount of supply that may remain available for export.
Peak production offers the next market signal
Malaysia usually reaches its seasonal production peak in September or October before output declines in the fourth quarter. That pattern makes the coming months important for plantation companies, processors, traders and buyers planning 2027 supply.
Current conditions do not establish that a production loss will occur. The pace and duration of the dry period, rainfall before the monsoon, and the strength of December precipitation will determine whether the present weather risk becomes a measurable supply shock. Until those signals are clearer, forward prices are likely to retain a weather premium.
