The US Department of Agriculture (USDA) has lowered its 2026/27 forecast for Malaysian palm oil production to 19.7M tonnes due to expectations of dry weather conditions associated with El Niño from June 2026 and well into 2027.
In its ‘Malaysia - Oilseeds and Products Update’ published on 1 July, the USDA said Malaysia’s palm oil sector is expected to face a challenging production environment in 2026/27 as industry stakeholders monitor the potential effects of El Niño-related dry weather conditions on oil palm plantations.
Dry conditions were expected to limit fresh fruit bunch (FFB) yields during the year.
“As oil palm productivity typically responds several months after periods of moisture stress, the impact is expected to be reflected in the third and fourth quarter of 2026/27,” USDA said.
The estimate for Malaysian 2025/26 palm oil production was 20M tonnes – an increase of 300,000 tonnes – driven by stronger than expected output in the first eight months of the marketing year compared to the corresponding period the previous year.
Planted area projections were 5.16M ha in 2026/27 compared to 5.15M the previous year – unchanged from USDA’s previous estimate – in line with Malaysian Palm Oil Board (MPOB) data.
Malaysia’s domestic palm oil demand in 2026/27 was projected to increase by 330,000 tonnes to 4.59M tonnes, following the gradual implementation of Malaysia’s palm oil-based biodiesel blend of 15% (B15) that started on 1 June 2026, with the first full-year impact expected to be seen this year.
According to the MPOB, the transition from B10 to B12 was expected to increase annual palm oil demand by approximately 130,000 tonnes, while the subsequent expansion to B15 could add a further 204,000 tonnes.
