El Nio stirs up palm oil: Indonesia and Malaysia production expected to fall 3% in 2027, prices may rise toward $1,226

Title context: El Nio stirs up palm oil: Indonesia and Malaysia production expected to fall 3% in 2027, prices may rise toward $1,226 Text: Persistent drought caused by a strong El Nio will depress yields next year, with palm oil production in Indonesia and Malaysia expected to decline in 2027, tightening global supply and pushing prices higher. According to the median estimate from a survey of seven analysts, combined output from the world's two largest palm oil producers is expected to fall by about 3%. Indonesia's production is forecast to drop to 49 million tons, while Malaysia's is expected to fall to 19.5 million tons. Three analysts said that, combined with Indonesia's expanding palm-based biodiesel blending policy and declining yields from aging palm trees, the persistent drought could curb supply and push benchmark palm oil prices toward 5,000 ringgit ($1,226) per ton in 2027. Shenzhen Agricultural Power Group market has been preparing for the impact of a strong El Nio. Hot and dry weather in Indonesia is expected to persist beyond the usual April-to-September cycle. The impact of El Nio on palm yields typically appears with a lag. Fastmarkets Palm Oil Analytics senior analyst Sathia Varqa said: "The El Nio weather currently underway is widely predicted to affect 2027 production, but the extent of the impact depends on its severity and duration." Indonesia's meteorological agency said the country's rainy season usually begins in October, but this year it may be delayed until November or December and could be shorter than in previous years. El Nio has already worsened fires in Kalimantan, a major palm-growing region, with the number of hot spots rising to the highest in a decade, disrupting fertilization, harvesting and transportation. Eco Palm International Sdn. trader Warren Tay said: "Kalimantan has been severely affected by haze. We expect the region to account for the largest share of next year's production decline." However, the impact on production may be smaller than initially feared. The Indonesian Palm Oil Association expects production to fall 3% in 2027, compared with an earlier estimate of a 5% decline. For now, supply remains ample. Kuala Lumpur palm oil futures fell as much as 2.3% on Friday, touching a two-month low. Malaysian inventories are already at their highest level of 2026 and are expected to exceed 3 million tons by year-end, as production peaks while demand remains weak. Analysts Alvin Tai and Jason F. Miner wrote in a report: "Palm oil inventories are rising and may hit a record high in the next one to three months, which will limit upside for prices this year."