Timely Rainfall Limits El Nino Impact on Malaysian Palm Oil Production by Amit Gupta, Kedia Advisory
Malaysia’s palm oil production is expected to remain relatively resilient in 2027 despite the intensifying El Niño threat, as better-than-expected rainfall has limited potential crop damage. Production is forecast at 19.8–20 million tonnes, slightly below the expected near-record output of 20.28 million tonnes in 2026. The impact is likely to be milder than during the 2015–16 El Niño, which reduced Malaysian crude palm oil production by 13.2%. In contrast, Indonesia could face a larger decline of around 2 million tonnes. However, El Niño is expected to peak between March and May 2027, keeping production risks elevated.
Key Highlights
* Malaysia’s palm oil production is forecast at 19.8–20 million tonnes in 2027, below the expected 20.28 million tonnes in 2026.
* Better-than-expected rainfall has reduced the immediate threat of severe El Niño-related production losses in Malaysia.
* The strong 2015–16 El Niño reduced Malaysia’s crude palm oil production by 13.2%.
* Indonesia’s palm oil output could decline by around 2 million tonnes in 2027 to 51.7 million tonnes.
* Malaysia’s weather agency expects El Niño to peak between March and May 2027, with temperatures potentially exceeding 40°C.
Palm oil production in Malaysia is expected to remain relatively resilient in 2027 despite the growing El Niño threat, as timely rainfall has helped limit potential crop damage. Output is forecast at 19.8–20 million tonnes, slightly below the expected near-record production of 20.28 million tonnes in 2026. The relatively stable outlook could provide some relief to global vegetable oil supplies, although weather-related uncertainties continue to support concerns over availability and food inflation.
Better-than-expected rainfall has reduced the immediate impact of dry weather across Malaysian plantations. The country has recorded significantly fewer months with rainfall below 100 mm compared with the strong 2015–16 El Niño period, when crude palm oil production declined by 13.2%. Malaysia’s production expected to fall by less than 0.5 million tonnes in 2027, considerably less than the potential losses in Indonesia. However, plantations in Sabah and Sarawak could face greater pressure than those in Peninsular Malaysia as the dry spell affects tree productivity. Production in Sabah and Sarawak is nevertheless expected to rise sharply in October following accelerated fruit ripening after dry conditions in August.
Indonesia faces a comparatively larger production risk, with output expected to decline by around 2 million tonnes to 51.7 million tonnes in 2027, against an estimated 53.7 million tonnes in 2026. Dry conditions in parts of Central and South Kalimantan and reports of forest fires in Papua New Guinea and Irian Jaya have added to regional concerns.
Malaysia’s weather agency expects El Niño to peak between March and May 2027, with maximum temperatures potentially exceeding the previous local record of 40.1°C set in 1998. Consequently, rainfall distribution and temperature patterns will remain critical for determining future production.
Better rainfall has limited Malaysia’s immediate production risks, but an intensifying El Niño and regional dryness could still tighten palm oil supplies in 2027.
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