ENSO Still in El Niño Territory
The equatorial Pacific remains in a weak El Niño phase, with the Oceanic Niño Index (ONI) at +1.0 for the latest reading. While sea-surface temperature anomalies have moderated from their mid-2025 peak, the atmospheric pattern typical of El Niño — drier-than-normal conditions over parts of maritime Southeast Asia — has not fully dissipated.
For palm oil, the critical concern is the lagged effect of moisture stress on oil palm yields. El Niño-driven rainfall deficits typically reduce fruit bunch weight and oil extraction rates 6–12 months after the dry spell peaks. The current ONI reading implies that the most acute stress period occurred in late 2025 to early 2026, meaning yield suppression may still be working through the current production cycle.
Current Rainfall: Broadly Normal Across the Belts
Despite the lingering ENSO signal, rainfall across the Malaysian and Indonesian palm belts over the past four weeks has been broadly normal. Our model outlook projects a mildly firm 7-day rainfall pattern, with no extreme dry or wet anomalies expected. This supports uninterrupted harvesting and milling operations, which is particularly relevant for the immediate supply chain.
Heavy rain events can disrupt fresh fruit bunch (FFB) collection and reduce mill throughput due to logistical bottlenecks. The absence of such disruptions in the near term should allow the current seasonal uptick in production to proceed without major hiccups.
Malaysia: Stocks Rise as Output Climbs
MPOB June data showed Malaysian CPO production at 1.64 million tonnes, up 8.1% month-on-month, while closing stocks rose 3.7% to 1.33 million tonnes. The production increase is consistent with the seasonal high-cycle, but the lagged El Niño effect may cap the magnitude of the peak. Exports rose 6.2% month-on-month, indicating steady demand, though imports surged 135% — partly a reflection of price arbitrage and stock-building by local refiners.
Indonesia: Reference Price Reflects Market
Indonesia’s Kemendag reference price for July stands at about $1,030/MT, below the global benchmark, which supports competitive export pricing. The broadly normal rainfall across Sumatra and Kalimantan — the main producing islands — is positive for near-term yields, though the lagged El Niño impact may still be felt in regions that experienced acute dryness in early 2026.
Biodiesel Blends and Crude Link
Brent crude at $93/bbl, up 0.9% on the session, continues to support palm oil’s competitiveness in biodiesel blending. Higher crude prices improve the economics of mandatory blend programs in both Malaysia and Indonesia, providing a floor under CPO demand even as supply fundamentals remain mixed.
Outlook: Mildly Firm, Within Normal Volatility
Our model outlook points to a mildly firm 7-day price trajectory, extending the recent upward drift. The absence of disruptive weather in the immediate forecast, combined with steady export demand and supportive crude values, suggests the market can absorb the seasonal production increase without a sharp price correction. However, the lagged El Niño risk remains a latent factor that could emerge in late 2026 output data if the current normal rains do not persist into the next cycle.