10 Jun 2026
El Niño impact on Malaysian and Indonesian palm oil production | Report
Palm oil is the world’s second most consumed vegetable oil. It will account for 46% of the global exportable surplus in 2026.
Malaysia and Indonesia supply a combined 88%, according to latest USDA numbers. In terms of production, rarely other products might match its geographic concentration risk.
Using an October/September marketing year, the USDA estimates output from the two countries at 67.1 million MT, against global consumption of 79.6 million MT. Stocks-to-use ratios tend to be structurally thin, estimated at just under 12% in 26/27.
This means a production shortfall of just a few percentage points, can move the global balance sheet significantly, especially so in Indonesia which provides 71% of the combined production. Whilst, the two countries have different production structural dynamics, both countries draw on an equatorial climate system that makes them acutely exposed to El Niño risk.
What’s covered in the full report
- Global palm oil supply and demand outlook (2026–2027)
- El Niño probability scenarios and production impact
- Indonesia vs Malaysia production dynamics
- Historical price sensitivity to weather shocks
- Key market risks and price implications
How does El Niño affect palm oil production?
El Niño typically reduces rainfall in Southeast Asia, which can lower palm yields and tighten global supply.
Why is palm oil supply so concentrated?
Production is heavily centred in Indonesia and Malaysia due to optimal climate conditions and established plantation infrastructure.
What happens if palm oil production falls?
Even small declines can significantly impact global vegetable oil markets because stock levels are structurally low.
