Indonesia’s palm oil production could fall 10% in 2027 due to El Niño

Indonesia’s palm oil production could decline by 10% in 2027 due to unfavorable weather conditions associated with the development of El Niño. According to estimates by SD Guthrie, higher temperatures and insufficient rainfall could negatively affect oil palm productivity, creating supply risks for the global palm oil market. Indonesia remains the world’s largest producer and exporter of palm oil, meaning a potential decline in output could significantly affect the global edible oil balance.

A distinctive feature of El Niño’s impact on oil palm plantations is the long delay between adverse weather conditions and the actual decline in yields. According to analysts, the negative effects of drought may emerge with a lag of 5 to 18 months. As a result, palm oil production could remain under pressure even after rainfall returns to normal, with the strongest negative impact potentially extending into 2028.

Meanwhile, Malaysia, the world’s second-largest palm oil producer, is currently recording an increase in output. According to preliminary estimates from the Malaysian Palm Oil Association (MPOA), production reached 2.23 mln tons in October 2026, up 5.53% from September. This indicates continued production growth, although the pace of expansion has slowed noticeably.

The strongest production growth in October was recorded in eastern Malaysia. On the island of Borneo, palm oil output increased by 9.45% compared with September, including gains of 10.94% in Sabah and 5.82% in Sarawak. Production on Peninsular Malaysia rose by 2.37%. By comparison, Malaysia’s total palm oil production increased by 19.07% month-on-month in September.

A potential decline in Indonesian production in 2027 could increase the risk of tighter palm oil supplies on the international market, particularly if unfavorable weather conditions also affect other producing countries. Under such a scenario, palm oil prices could receive additional support, influencing its competitiveness against soybean, sunflower and rapeseed oils. However, future market developments will depend on the intensity of El Niño, Malaysian production volumes and global demand trends for edible oils.

Tags: weather conditions, Indonesia, palm oil